-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Oy+q5HuU+xphvsJDEm+AaVMXRfPI11ra+fyy848NUumM2NkDj18srVsYdvYm+jd3 Rka4Er22hgqBZCOLP9uebA== 0000890566-94-000496.txt : 19941216 0000890566-94-000496.hdr.sgml : 19941216 ACCESSION NUMBER: 0000890566-94-000496 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19941031 FILED AS OF DATE: 19941215 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTELOGIC TRACE INC CENTRAL INDEX KEY: 0000771993 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 742368260 STATE OF INCORPORATION: NY FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08948 FILM NUMBER: 94564984 BUSINESS ADDRESS: STREET 1: TURTLE CREEK TWR I STREET 2: PO BOX 400044 CITY: SAN ANTONIO STATE: TX ZIP: 78229-8415 BUSINESS PHONE: 2105935700 10-Q 1 QUARTERLY REPORT FOR THE PERIOD ENDED 10/31/94 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------- FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1994 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM ___________ TO ______________ COMMISSION FILE NUMBER 1-8948 INTELOGIC TRACE, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW YORK 74-2368260 (STATE OR OTHER JURISDICTION OF (I. R. S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) TURTLE CREEK TOWER I P.O. BOX 400044, SAN ANTONIO, TX 78229-8415 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) 210-593-5700 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) NONE (FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / The number of shares outstanding of registrant's common stock, par value $.01 per share, as of December 8, 1994 was 12,505,631 shares. INTELOGIC TRACE, INC. PAGE NO. PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Statements of Financial Position as of October 31, 1994 (Unaudited) and July 31, 1994....... 4 Unaudited Consolidated Statements of Operations for the Three Months Ended October 31, 1994 and 1993............ 5 Unaudited Consolidated Statements of Cash Flows for the Three Months Ended October 31, 1994 and 1993............ 6 Notes to Unaudited Consolidated Financial Statements...... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings......................................... 17 Item 5. Other Information......................................... 18 Item 6. Exhibits and Reports on Form 8-K.......................... 18 SIGNATURES .......................................................... 22 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTELOGIC TRACE, INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In thousands, except share data) OCTOBER 31, JULY 31, 1994 1994 ---------- -------- (Unaudited) ASSETS Current Assets Cash and temporary investments .................... $ 202 $ 605 Marketable securities, net ........................ 750 -- Accounts receivable, net .......................... 4,594 7,192 Field support spares, net ......................... 2,511 -- Net assets of discontinued operations ............. 167 200 Inventory ......................................... 675 326 Prepaid expenses .................................. 1,120 1,038 Deposits and other current assets ................. 324 260 ---------- -------- Total current assets ........................... 10,343 9,621 Leasehold Improvements and Equipment, net ............ 1,009 1,213 Field Support Spares, net ............................ 100 2,625 Intangible Assets, net ............................... 1,850 1,864 Other Assets ......................................... 427 246 ---------- -------- Total assets ................................... $ 13,729 $ 15,569 ========== ======== LIABILITIES AND SHAREHOLDERS' DEFICIT Current Liabilities Not Subject To Compromise Accounts payable .................................. 2,438 1,571 Accrued expenses .................................. 3,270 2,534 Note payable ...................................... 1,076 -- Short-term borrowings ............................. 6,689 7,919 Deferred revenue .................................. 6,455 9,690 Total current liabilities ...................... 19,928 21,714 Liabilities Subject to Compromise .................... 62,205 62,252 Deferred Income Taxes and Other Liabilities .......... 441 441 $10.00 Redeemable Preferred Stock; 65,000 shares authorized; 0 and 46,301 shares issued and outstanding at October 31, 1994 and July 31, 1994, respectively; $100 mandatory redemption value ..... -- 4,691 Commitments and Contingencies (Note 6) Shareholders' Deficit Preferred stock ($.01 par; 20,000,000 shares authorized) ..................................... -- -- Common stock ($.01 par; 40,000,000 shares authorized, 19,908,398 shares issued) ........... 199 199 Additional paid-in capital ........................ 56,925 51,508 Retained deficit .................................. (70,561) (69,695) Foreign currency translation adjustment ........... (17) 28 Less common stock in treasury - at cost (7,402,174 and 7,420,764 shares at October 31, 1994 and July 31, 1994, respectively ) ................... (52,974) (53,152) Retirement valuation reserve ...................... (2,417) (2,417) ---------- -------- Total shareholders' deficit .................... (68,845) (73,529) ---------- -------- Total liabilities and shareholders' deficit . $ 13,729 $ 15,569 ========== ======== See accompanying notes to consolidated financial statements. INTELOGIC TRACE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited) THREE MONTHS ENDED OCTOBER 31, ---------------------- 1994 1993 ------- ------- Revenue Service ....................................... $12,914 $19,870 Sales ......................................... 3,708 232 ------- ------- Total Revenue .............................. 16,622 20,102 ------- ------- Cost of Revenue Service ....................................... 9,430 $16,175 Sales ......................................... 2,855 86 ------- ------- Total Cost of Revenue ...................... 12,285 16,261 ------- ------- Gross Profit ............................... 4,337 3,841 Operating Expenses Selling, general and administrative expenses .. 3,837 4,691 Restructuring charges ......................... 47 -- ------- ------- Total Operating Expenses ................... 3,884 4,691 ------- ------- Earnings (Loss) From Operations ............ 453 (850) Other Income (Expense) Reorganization charges - bankruptcy ........... (934) -- Interest expense .............................. (554) (1,636) Other, net .................................... 169 (100) ------- ------- Loss From Continuing Operations Before Taxes (866) (2,586) Income Tax Benefit ............................... -- 1,193 ------- ------- Loss From Continuing Operations ............ (866) (1,393) ------- ------- Earnings from Discontinued Operations ............ -- 828 ------- ------- Net Loss ................................... $ (866) $ (565) ======= ======= Net Loss, Less Preferred Stock Dividends ... $ (866) $ (744) ======= ======= Earnings (Loss) Per Common Share Loss from continuing operations ............... $ (.07) $ (.13) Earnings from discontinued operations ......... -- .07 ------- ------- Net Loss Per Common Share ............... $ (.07) $ (.06) ======= ======= Weighted Average Common Shares Outstanding ....... 12,497 12,074 ======= ======= See accompanying notes to consolidated financial statements. INTELOGIC TRACE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) THREE MONTHS ENDED OCTOBER 31, ---------------------- 1994 1993 ------- ------- Operating Activities Net loss ...................................... $ (866) $ (565) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization ........... 224 3,565 Adjustment to net assets of discontinued operations ............................ -- (828) Deferred income tax benefit ............. -- (1,191) Provision for doubtful accounts ......... 1,971 1,963 Other ................................... (26) 272 Changes in operating assets and liabilities Accounts receivable ........................ 627 (892) Other assets ............................... (634) 273 Accounts payable and accrued expenses ...... 1,696 1,436 Deferred revenue ........................... (3,235) (2,779) Other current liabilities .................. -- (116) ------- ------- Net Cash Provided By (Used In) Operating Activities .................. (243) 1,138 Investing Activities Purchase of spares and other fixed assets ..... (6) (2,208) ------- ------- Net Cash Used In Investing Activities ... (6) (2,208) Financing Activities Net change in revolving loan facility ......... (1,230) 438 Proceeds from note payable .................... 1,300 -- Payments on note payable ...................... (224) -- ------- ------- Net Cash Provided By (Used In) Financing Activities ............................ (154) 438 Net Decrease in Cash and Temporary Investments ... (403) (632) Cash and Temporary Investments, beginning of period ...................................... 605 1,626 ------- ------- Cash and Temporary Investments, end of period .... $ 202 $ 994 ======= ======= See accompanying notes to consolidated financial statements. INTELOGIC TRACE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OCTOBER 31, 1994 1. INTERIM UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS In the opinion of management, the Interim Unaudited Consolidated Financial Statements of Intelogic Trace, Inc. and its wholly owned subsidiaries (the "Company") include all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company's financial position as of October 31, 1994, and the results of its operations for the three months ended October 31, 1994 and 1993. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations promulgated by the Securities and Exchange Commission. The Interim Unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes of Intelogic Trace, Inc. for the year ended July 31, 1994. 2. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Intelogic Trace, Inc. and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated. EARNINGS PER COMMON SHARE Earnings per common share are based on the weighted average number of shares outstanding during the period, after giving effect for preferred stock dividends. Because operations resulted in a loss, common stock equivalents were not considered in the computation as their effect would be anti-dilutive. CERTAIN RECLASSIFICATIONS Certain reclassifications have been made to the prior period statements to conform them to the October 31, 1994, presentation. 3. STATEMENTS OF CASH FLOWS SUPPLEMENTARY DISCLOSURE Cash paid for interest was $261,000 and $123,000 for the three months ended October 31, 1994 and 1993, respectively. Cash paid for income taxes was $25,000 and $6,000 for the three months ended October 31, 1994 and 1993, respectively. For the three months ended October 31, 1994, the Company entered into a noncash transaction with Datapoint Corporation ("Datapoint"). See Note 5 for further discussion. 4. PETITION FOR RELIEF UNDER CHAPTER 11 During Spring 1994, the Company experienced an increased reliance on borrowed funds to satisfy working capital requirements, principally as a result of a continued erosion in operating performance. The Company engaged a company which specializes in consulting with financially troubled businesses to review cash flows, liquidity concerns, and provide recommendations to establish both immediate and long-term improvements in cash flow, profitability, asset management, and capital structure. Liquidity pressures continued to increase and the Company determined that the aggregate borrowing availability under its revolving credit agreement would not be sufficient to meet the Company's obligations on a current basis. The Company's liquidity shortfall was compounded by the semi-annual interest payment due July 15, 1994 of $3.0 million on the $49.9 million in principal amount of 11.99% Subordinated Debentures due 1996 (the "Debentures"). In addition to ongoing discussions with its lender, during late June and early July 1994, the Company held discussions with the holders of a majority in principal amount of Debentures (the "Principal Debentureholders") regarding a potential restructuring of that obligation. On July 15, 1994, the Company filed a Current Report on Form 8-K disclosing that it was negotiating with its Principal Debentureholders and that it would not make the interest payment on the Debentures. On July 21, 1994, the Indenture Trustee for the Debentures issued its notice of default. Pursuant to the terms of the Indenture, a failure to make the semi-annual interest payment within the thirty-day grace period allowed by the Indenture would cause an Event of Default to have occurred. Due principally to increasing pressures on available capital, the nonpayment of a promissory note to the Company and potential terminations of certain leases, licenses, and contracts due to financial defaults, the Company reached the conclusion that the protection of the Bankruptcy Code was necessary in order to consummate the restructuring of the Debentures and the revolving financing agreement. On August 5, 1994, the Company filed a voluntary petition for reorganization under Chapter 11. As a result of discussions with its Principal Debentureholders, contemporaneously with filing the petition, the Company filed a Plan of Reorganization setting forth the terms of the proposed restructuring. Under Chapter 11, enforcement of certain claims in existence prior to the filing of the petition are stayed, while the Company continues operations in the ordinary course of business as debtor-in-possession. These claims are reflected in the consolidated financial statements as of October 31, 1994, as "liabilities subject to compromise." Additional prepetition claims may arise subsequent to the petition date resulting from the rejection of executory contracts and/or leases and determination of the Court of allowed claims for contingencies and other disputed amounts. On October 4, 1994, the Court approved the Company's Disclosure Statement. The Disclosure Statement, as modified and amended, describes the Plan proposed by the Company. The Plan was submitted to a vote of creditors, security holders and parties in interest, was confirmed by the Bankruptcy Court on November 22, 1994, and the confirmation order was entered on November 28, 1994. The Plan will, among other things, cause the following to occur following December 8, 1994, the Effective Date of the Plan: (1) administrative and tax claims will be paid in full; (2) a new series of Preferred Stock will be issued to certain holders of unsecured claims; (3) a four-for-one reverse split of the common stock will be consummated, with existing common shareholders retaining approximately 25% of the Company's common stock outstanding after the Effective Date, and (4) certain holders of unsecured claims will also receive shares of new common stock that will equal 75% of the shares of common stock outstanding after the Effective Date. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. The Plan, however, will materially change the amounts reported in the consolidated financial statements as of the Effective Date. The financial statements included herein do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of the Plan. The appropriateness of using the going concern basis is dependent upon, among other things, the ability to comply with financing agreements, generation of sufficient cash from operations and financing sources to meet obligations, and achievement of satisfactory levels of future operating profit. In November 1990, the American Institute of Certified Public Accountants issued Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"). Pursuant to the guidance provided by SOP 90-7, the Company will adopt "fresh start" reporting as of the effective date of the Plan. Under "fresh start" reporting, the reorganization value of the entity will be allocated to the entity's assets. If any portion of the reorganization value cannot be attributed to specific tangible or identifiable intangible assets of the emerging entity, such amounts are to be reported as "reorganization value in excess of amounts allocable to identifiable intangible assets" and amortized over a period of years, generally substantially less than forty years. As a result of adopting "fresh start" reporting upon emerging from Chapter 11 status, the Company's consolidated financial statements will not be comparable with those prepared before the Plan is confirmed, including the historical consolidated financial statements included herein. The Company is in the process of obtaining an independent determination of such reorganization value. In addition to fresh start reporting, SOP 90-7 provides guidance for financial reporting by entities that have filed petitions with the Court and expect to reorganize under Chapter 11. The Company followed these guidelines in the accompanying October 31, 1994, consolidated financial statements. Pursuant to SOP 90-7, prepetition liabilities are reported on the basis of the expected amount of such allowed claims, as opposed to the amounts for which those allowed claims may be settled. Under the Plan, holders of those claims will receive Company securities based upon the amount of their claims. As of October 31, 1994, prepetition liabilities subject to compromise consist of the following (in thousands): 11.99% Subordinated Debentures due 1996..... $ 49,924 Accounts payable............................ 6,532 Accrued interest payable.................... 3,324 Contribution payable to pension plan........ 2,417 Other liabilities........................... 8 ------- $62,205 ======= During October 1994, the Company notified the Pension Benefit Guaranty Corporation (the "PBGC") of its intent to terminate its pension plan effective December 31, 1994. A Bankruptcy Court hearing was held on November 9, 1994, at which the Judge found that a distress termination of the retirement income plan was appropriate and so ordered. The Company has negotiated a settlement with the PBGC consistent with the Plan under which the PBGC shall be treated as a Class 6 creditor and shall receive a prorata distribution with other Class 6 creditors and an amount of new preferred stock equal to 20% of the new preferred stock that the PBGC would otherwise receive as a Class 6 creditor. The Company has requested approval from the Court to pay or otherwise honor certain of its prepetition obligations, including certain wages, salaries and related benefits of employees, claims for certain limited contributions to an employee benefit plan, and claims up to $900 per creditor arising from the deposit of money for certain services, claims of vendors to contracts under which the Company has posted a bond. The Plan provides that unsecured claims (other than subordinated Debentureholders) of $5,000 or less, which will be entitled to receive the lesser of a payment of cash equal to 50% of such claim or such creditors pro rata share of $650,000. The Company's short-term borrowings under a revolving financing agreement is a secured claim. Under the Plan, the Company is responsible for either renegotiating the revolving financing agreement or finding a lender that will satisfy the creditor's claim. Under the terms of the Plan, each holder of an unsecured claim not specifically classified in another class will receive, after the Effective Date of the Plan, a pro rata share of a new series of preferred stock and new common stock. The new series of preferred stock will consist of 1,133,333 shares, subject to increase based upon unsecured claims other than the Debentureholders in excess of $5 million, and will have an aggregate liquidation preference of at least $17 million. The new common stock will constitute 75% of the total outstanding common stock of the Company after the Effective Date. 5. INVESTMENT IN AFFILIATE On September 27, 1994, the Company entered into an agreement (the "Agreement") with Datapoint. Of the 2,743,385 shares of Datapoint common stock held by the Company at July 31, 1994, 2.4 million shares were distributed to Datapoint pursuant to the terms of the Agreement. The remaining 343,385 shares were retained by the Company. In addition, the Agreement called for the cancellation of the Company's $10 Redeemable Preferred Stock (the "Preferred Stock") issued to Datapoint on November 9, 1990, in connection with the purchase of Datapoint Canada, subsequently renamed Intelogic Trace Canada, Inc. Also resulting from the purchase of Datapoint Canada and subsequently canceled on September 27, 1994, was an option issued to Datapoint to purchase all of the Company's holdings of Datapoint common and preferred stock. The effect of the Agreement caused the cancellation and return to the Company of the Preferred Stock and the recording of the shares of Datapoint common stock at fair market value resulting in an increase to additional paid-in capital of $5.7 million. Of the 343,385 shares of Datapoint common stock held by the Company, 43,385 shares were sold as of October 31, 1994. The Company intends to sell the remaining 300,000 shares which are classified as marketable securities and recorded at their fair market value as of October 31, 1994. 6. CONTINGENCIES The Company filed a Voluntary Petition on August 5, 1994 under Chapter 11 of the United States Bankruptcy Court. A Disclosure Statement to the Plan of Reorganization of the Company was approved by the Court. The Company's Plan was confirmed by the Court on November 22, 1994. See Note 4 for further discussion. Two shareholders of the Company have filed lawsuits against the Company and its Board of Directors demanding that the Company seek damages from its Board of Directors with respect to the Company's 1990 purchases of the stock of the Company and Datapoint. A committee of the Board of Directors was appointed to consider the demands raised in each case. The committee retained independent counsel to review the matters raised in the lawsuits and determined that it was not in the best interest of either the Company or its shareholders to accept either demand and, accordingly, instructed counsel to seek the dismissal of both lawsuits. In January 1992, a motion for summary judgment on behalf of the Company and the Board of Directors was denied in the lawsuit pending in the New York State Court and is currently on appeal. A similar motion, involving only the Company's purchase of its own stock, was denied with leave to renew after the appeal in the New York State Court action is decided. The second case is pending in the United States District Court for the Southern District of New York. This action charged a violation of the proxy laws and breach of fiduciary duties with respect to several actions by the Board, including the purchase of the Company's own stock. In June 1993, another shareholder commenced a derivative action against certain members of the Company's Board of Directors and Datapoint. Because this latest action is substantially similar to one of the previously filed suits, the plaintiffs in the latest action have filed a motion to dismiss their complaint without prejudice. On May 13, 1994, the Company announced that although it and the Board of Directors expressly disclaim and deny any liability or wrongdoing with respect to the allegations, a settlement had been reached in order to avoid the additional expense, burden, inconvenience and distraction of continued litigation. Pursuant to the settlement agreement, which is subject to Bankruptcy and District Court approval, the Company will receive $2.4 million less attorney's fees and expenses (not to exceed $800,000) awarded by the Court. In addition, the Company has agreed to form a committee of the Board to address and approve certain matters relating to the Company's current and prospective investments. The cash portion of the settlement is fully covered by the Company's director and officer liability insurance but may be offset in whole or in part by future director and officer liability insurance premium increases. A United States District Judge for the Southern District of New York has held a hearing concerning the fairness of the proposed settlement. However, no opinion has yet been issued. The Judge has referred the case to the Bankruptcy Court for further adjudication consistent with bankruptcy laws. Due to the current uncertainty as to any recovery, the Company has not recorded any receivable. The Judge held a hearing on this matter on November 28, 1994, and has requested that the parties submit briefs on certain matters. The matter is still under advisement. On October 4, 1994, certain Debentureholders filed an adversary proceeding in the Bankruptcy Court against the Company alleging securities law violations and certain other common law causes of action. The litigation relates to the Company's purchases of securities, including Datapoint Stock and related actions. The plaintiffs in the adversary proceeding seek monetary damages, attorney's fees, and costs of suit. A hearing on this matter is scheduled for January 23, 1995. The Internal Revenue Service ("IRS") has issued assessment letters relating to the consolidated federal income tax returns of the Company for the years 1986 through 1992. The IRS letters propose assessments totaling $31.0 million in additional taxes plus interest. The assessment primarily involves the industry-wide issue of the appropriate method for cost recovery of spare parts. A recent case on the same issue was decided in the taxpayer's favor by the United States Tax Court, but is being appealed by the IRS. If the decision was followed by courts with jurisdiction over the Company, the remaining proposed assessment would be approximately $2.5 million in additional taxes plus interest. The Company strongly disagrees with the proposed adjustments and has filed a protest, appealing each of the adjustments in the IRS report. During 1994, the Company negotiated a settlement with the IRS and on October 3, 1994, the IRS appeals officer provided the Company a settlement document indicating a refund of $1.1 million net of interest costs. The IRS settlement document is subject to approval by the Joint Committee of Congress and therefore, the ultimate outcome cannot presently be determined. Accordingly, the Company has not recorded a receivable for any possible refund. The Company is a party to various legal proceedings in the ordinary course of business. The Company believes that there is no proceeding either threatened or pending against the Company that could result in a materially adverse effect on the business or the financial condition of the Company. 7. SUBSEQUENT EVENTS CONFIRMATION OF PLAN OF REORGANIZATION On November 22, 1994, the Company's proposed Plan of Reorganization was confirmed by the Bankruptcy Court. See Note 4 for further discussion. EXIT FINANCING Prior to the confirmation of the Plan, the Company obtained commitments for exit financing from Foothill Capital Corporation ("Foothill") and Fidelity Capital & Income Fund ("Fidelity") to make certain loan and financial accommodations to the Company. The Company entered into an amended and restated general loan and security agreement with Foothill. The agreement provides for revolving advances, the proceeds of which may be used for working capital needs and limited capital expenditures. The revolving advances may not exceed the lesser of: the maximum amount defined as (a) $4.5 million until June 30, 1995, reducing $100,000 per month thereafter through December 1, 1995, at which time such amount shall be and remain at $3.9 million or (b) a defined borrowing base. The defined borrowing base is a percentage of eligible accounts receivable plus an allowed overadvance of up to $1.0 million of which such overadvance, if any, is to be purchased by Fidelity from Foothill on or before January 17, 1995. The percentage to be applied to eligible accounts for purposes of calculating the borrowing base will decrease ratably from 80% over the period from the Effective Date through March 22, 1995, at which time such percentage shall be and will remain at 70% through December 31, 1995, the final maturity of Foothill's loan. Borrowings from Foothill are secured by a first lien on the Company's accounts receivable and a first lien on inventory until the allowed overadvance, if any, is repaid. Foothill will retain a junior lien in all other existing assets and shall share prorata in the after acquired assets with Fidelity based upon outstanding balances owed. Outstanding borrowings accrue interest at 4 1/2 percentage points above the prime rate. The Company is required to pay a commitment fee of 1/2 of 1% per annum on the average unused portion of the maximum amount. The agreement expires on December 31, 1995, at which time all borrowings are due. The Company also entered into a loan agreement with Fidelity which provides for an initial advance of $5.0 million to the Company and an amount not to exceed $1.0 million solely for the purpose of purchasing an overadvance, if any, from Foothill on or before January 17, 1995. The proceeds of the initial advance were used to repay the existing overadvance on the Company's indebtedness to Foothill and the remaining proceeds were used to pay claims of creditors and expenses incurred by the Company in connection with the Plan of Reorganization. Borrowings from Fidelity are secured by a first lien on inventory (after the overadvance, if any); a potential refund from the IRS; shares of Datapoint common stock; and amounts, if any, from the settlement of shareholder litigation described in Note 6 to the Consolidated Financial Statements. Fidelity will retain a junior lien on all other existing assets and shall share prorata in the after acquired assets with Foothill. Mandatory prepayments are required only upon the realization of proceeds from assets securing the loan. The outstanding borrowings accrue interest at 15% per annum. In addition, the Company will pay Fidelity a closing fee consisting of 6,667 shares of the Company's new 10% Preferred Stock. The principal amount of the loan, together with any accrued and unpaid interest is due and payable on December 31, 1995. SALE OF FIELD SUPPORT SPARES On November 22, 1994, the Company sold its field support spares for a total of $2.6 million to PC Service Source ("PCSS"). The Company received $1.4 million of the proceeds and will receive the remaining proceeds of $1.2 million in installments of $100,000 per month beginning in December 1994. In connection with the sale of the field support spares, the Company negotiated an agreement with PCSS for the outsourcing of the Company's logistics and repair operations. In anticipation of this sale, the Company valued its field support spares as of July 31, 1994 at their estimated net realizable value of $2.6 million. Accordingly, during the quarter ended October 31, 1994, the Company ceased depreciating its field support spares and commenced recording the purchase of all new field support spares as cost of service currently. SUSPENSION OF TRADING BY NEW YORK STOCK EXCHANGE / TRADING ON THE OTC BULLETIN BOARD On December 8, 1994, the New York Stock Exchange suspended trading of the Company's common stock and 11.99% Subordinated Debentures based on the failure of the Company to meet the continued listing criteria of the New York Stock Exchange. The Company commenced trading under the symbol "ITLG" on the OTC Bulletin Board Service on December 13, 1994. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Years referred to are fiscal years) OVERVIEW During Spring 1994, the Company experienced an increased reliance on borrowed funds to satisfy working capital requirements, principally as a result of continued erosion in operating performance. The Company engaged a company to review cash flows, financial needs, liquidity concerns, and provide recommendations to establish both immediate and long-term improvements in cash flow, profitability, asset management, and capital structure. Liquidity pressures continued to increase and the Company determined that the aggregate borrowing availability under its revolving credit agreement would not be sufficient to meet the Company's obligations on a current basis. The Company's liquidity shortfall was compounded by the semi-annual interest payment due July 15, 1994, of $3.0 million on the $49.9 million in principal amount of Debentures. In addition to ongoing discussions with its lender, during late June and early July 1994, the Company held discussions with the Principal Debentureholders regarding a potential restructuring of that obligation. On July 15, 1994, the Company filed a Current Report on Form 8-K disclosing that it was negotiating with its Principal Debentureholders and that it would not make the interest payment on the Debentures. On July 21, 1994, the Indenture Trustee for the Debentures issued its notice of default. Pursuant to the terms of the Indenture, a failure to make the semi-annual interest payment within the thirty-day grace period allowed by the Indenture would cause an Event of Default to have occurred. Due to increasing pressures on available capital, the nonpayment of a promissory note to the Company and potential terminations of certain leases, licenses, and contracts due to financial defaults, the Board of Directors reached the conclusion that the protection of the Bankruptcy Code was necessary in order to consummate the restructuring of the Debentures and the revolving financing facility. On August 5, 1994, the Company filed a voluntary petition for reorganization under Chapter 11. As a result of discussions with its Principal Debentureholders, contemporaneously with filing the petition, the Company filed a Plan of Reorganization setting forth the terms of the proposed restructuring. Under Chapter 11, enforcement of certain claims in existence prior to the filing of the petition are stayed, while the Company continues operations in the ordinary course of business as debtor-in-possession. These claims are reflected in the consolidated financial statements as of October 31, 1994, as "liabilities subject to compromise." Additional prepetition claims may arise subsequent to the petition date resulting from the rejection of executory contracts and/or leases and determination of the Court of allowed claims for contingencies and other disputed amounts. On October 4, 1994, the Court approved the Company's Disclosure Statement. The Disclosure Statement, as modified and amended, describes the Plan proposed by the Company. The Plan was submitted to a vote of creditors, security holders and parties in interest, was confirmed by the Bankruptcy Court on November 22, 1994, and the confirmation order was entered on November 28, 1994. The Plan will, among other things, cause the following to occur following December 8, 1994, the Effective Date of the Plan: (1) administrative and tax claims will be paid in full; (2) a new series of Preferred Stock will be issued to certain holders of unsecured claims; (3) a four-for-one reverse split of the common stock will be consummated, with existing common shareholders retaining approximately 25% of the Company's common stock outstanding after the Effective Date, and (4) certain holders of unsecured claims will also receive shares of new common stock that will equal 75% of the shares of common stock outstanding after the Effective Date. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. The Plan, however, will materially change the amounts reported in the consolidated financial statements as of the Effective Date. The financial statements included herein do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of the Plan. The appropriateness of using the going concern basis is dependent upon, among other things, the ability to comply with financing agreements, generation of sufficient cash from operations and financing sources to meet obligations, and achievement of satisfactory levels of future operating profit. DEBTOR-IN-POSSESSION FINANCING On September 16, 1994, the Court entered an order approving a debtor-in-possession credit agreement (the "DIP Facility"). The DIP Facility consists of an extension and modification of the previously existing credit agreement with Foothill. Borrowings under the DIP Facility bear interest at the prime rate plus 4.5 percent, are payable monthly in arrears, and are secured by a lien on substantially all of the assets of the Company. Under the terms of the DIP Facility, the Company is not authorized to use the collateral (i) upon an event of non-compliance with the Bankruptcy Court order approving the DIP Facility, (ii) after December 31, 1994, unless extended by mutual agreement of the Company and Foothill, or (iii) after entry of an order by the Court confirming a plan of reorganization of the Company. In September, the Company determined that it would require $1.3 million post-petition credit in addition to the DIP Facility to provide additional working capital for continued operations. Under approval of the Court, the Company obtained this additional credit from Fidelity Capital and Income Fund ("Fidelity"), a Principal Debentureholder, at an annual interest rate of 15%. The balance of this note is classified as a note payable in the October 31, 1994 statement of financial position. Although no assurance can be made, management believes the Company can generate sufficient cash from operations and from existing financing sources to meet its obligations on a current basis during the pendency of the Case. EXIT FINANCING Prior to the confirmation of the Plan, the Company obtained commitments for exit financing from Foothill and Fidelity to make certain loan and financial accommodations to the Company. The Company entered into an amended and restated general loan and security agreement with Foothill. The agreement provides for revolving advances, the proceeds of which may be used for working capital needs and limited capital expenditures. The revolving advances may not exceed the lesser of: the maximum amount defined as (a) $4.5 million until June 30, 1995, reducing $100,000 per month thereafter through December 1, 1995, at which time such amount shall be and remain at $3.9 million or (b) a defined borrowing base. The defined borrowing base is a percentage of eligible accounts receivable plus an allowed overadvance of up to $1.0 million of which such overadvance, if any, is to be purchased by Fidelity from Foothill on or before January 17, 1995. The percentage to be applied to eligible accounts for purposes of calculating the borrowing base will decrease ratably from 80% over the period from the Effective Date through March 22, 1995, at which time such percentage shall be and will remain at 70% through December 31, 1995, the final maturity of Foothill's loan. Borrowings from Foothill are secured by a first lien on the Company's accounts receivable and a first lien on inventory until the allowed overadvance, if any, is repaid. Foothill will retain a junior lien in all other existing assets and shall share prorata in the after acquired assets with Fidelity based upon outstanding balances owed. Outstanding borrowings accrue interest at 4 1/2 percentage points above the prime rate. The Company is required to pay a commitment fee of 1/2 of 1% per annum on the average unused portion of the maximum amount. The agreement expires on December 31, 1995, at which time all borrowings are due. The Company also entered into a loan agreement with Fidelity which provides for an initial advance of $5.0 million to the Company and an amount not to exceed $1.0 million solely for the purpose of purchasing an overadvance, if any, from Foothill on or before January 17, 1995. The proceeds of the initial advance were used to repay the existing overadvance on the Company's indebtedness to Foothill and the remaining proceeds were used to pay claims of creditors and expenses incurred by the Company in connection with the Plan of Reorganization. Borrowings from Fidelity are secured by a first lien on inventory (after the overadvance, if any); a potential refund from the IRS; shares of Datapoint common stock; and amounts, if any, from the settlement of shareholder litigation described in Note 6 to the Consolidated Financial Statements. Fidelity will retain a junior lien on all other existing assets and shall share prorata in the after acquired assets with Foothill. Mandatory prepayments are required only upon the realization of proceeds from assets securing the loan. The outstanding borrowings accrue interest at 15% per annum. In addition, the Company will pay Fidelity a closing fee consisting of 6,667 shares of the Company's new 10% Preferred Stock. The principal amount of the loan, together with any accrued and unpaid interest is due and payable on December 31, 1995. REORGANIZATION ACCOUNTING ISSUES In November 1990, the American Institute of Certified Public Accountants issued SOP 90-7. Pursuant to the guidance provide by SOP 90-7, the Company will adopt "fresh start" reporting as of the Effective Date. Under "fresh start" reporting, the reorganization value of the entity will be allocated to the entity's assets. If any portion of the reorganization value cannot be attributed to specific tangible or identifiable intangible assets of the emerging entity, such amounts are to be reported as "reorganization value in excess of amounts allocable to identifiable intangible assets" and amortized over a period of years, generally substantially less than forty years. As a result of adopting "fresh start" reporting upon emerging from Chapter 11 status, the Company's consolidated financial statements will not be comparable with those prepared before the Plan is confirmed, including the historical consolidated financial statements included herein. The Company is in the process of obtaining an independent determination of such reorganization value. In addition to "fresh start" reporting, SOP 90-7 provides guidance for financial reporting by entities that have filed petitions with the Court and expect to reorganize under Chapter 11. The Company followed these guidelines in the accompanying October 31, 1994 consolidated financial statements. Pursuant to SOP 90-7, prepetition liabilities are reported on the basis of the expected amount of such allowed claims, as opposed to the amounts for which those allowed claims may be settled. Under the Plan, holders of those claims will receive Company securities based upon the amount of their claims. As of October 31, 1994, prepetition liabilities subject to compromise consist of the following (in thousands): 11.99% Subordinated Debentures due 1996.... $49,924 Accounts payable........................... 6,532 Accrued interest payable................... 3,324 Contribution payable to pension plan....... 2,417 Other liabilities.......................... 8 ------- $62,205 ======= OTHER On December 8, 1994, the New York Stock Exchange suspended trading of the Company's common stock and 11.99% Subordinated Debentures based on the failure of the Company to meet the continued listing criteria of the New York Stock Exchange. The Company's common stock commenced trading under the symbol "ITLG" on the OTC Bulletin Board Service on December 13, 1994. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 1994 AND 1993 Earnings (loss) from operations improved from a loss of $850,000 in first quarter 1994 to earnings of $453,000 in first quarter 1995. This was due primarily to profit of $650,000 on the sale of certain parts to a customer. In addition, the Company has been successful in implementation of its cost reduction program which was launched in connection with the anticipated decline in revenue. REVENUE Total revenue for the first quarter 1995 declined $3.5 million (17.3%) compared to the first quarter 1994 due largely to the cancellation and non-renewal of various service contracts. Additionally, $675,000 was due to a decline in revenue from servicing Datapoint-manufactured products. This was due primarily to the continued decline of the Datapoint customer base. The decline in revenue was partially offset by the one-time sale of certain parts to a customer for $2.5 million. Included in the cost of sales is $1.8 million of costs associated with these parts. This sales activity is not expected to continue in future quarters. During the first quarter 1995, the cancellation of various service contracts resulted in the decline reflected in accounts receivable and deferred revenue from July 31, 1994 to October 31, 1994. For most service contracts, the Company bills in advance and records the billing as a receivable and as deferred revenue. When the contracts were canceled, the related receivable and deferred revenue were written off. Management believes that the decline in revenue during 1994 and 1995 is attributable to a variety of factors including the price of service offerings, new product warranty offerings, an increased level of competition in the market for service-related products and a negative reaction to the bankruptcy filing. These factors are expected to continue through much of 1995 and as a result, revenues are expected to continue to fall below fiscal year 1994 levels. COST OF REVENUE Excluding the effects of the sale of parts as discussed in "Revenue" above, the decrease in the total cost of revenue approximated the decline in revenue. OPERATING EXPENSES Operating expenses decreased $807,000 (or 17.2%) due to the Company's cost reduction efforts. Total personnel costs accounted for the majority of the decline due to the reduction in staff during the spring of 1994. Also contributing to the improvement in operating expenses were lower facility lease costs resulting from the Company's ability to renegotiate lease costs during bankruptcy. On November 22, 1994, the Company sold its field support spares for a total of $2.6 million to PCSS. The Company received $1.4 million of the proceeds and will receive the remaining proceeds of $1.2 million in installments of $100,000 per month beginning in December 1994. In connection with the sale of the field support spares, the Company negotiated an agreement with PCSS for the outsourcing of the Company's logistics and repair operations. The Company anticipates that this agreement will result in a reduction of operating costs associated with the logistics and repair operations. In anticipation of this sale, the Company valued its field support spares as of July 31, 1994 at their estimated realizable value of $2.6 million. Accordingly, during the quarter ended October 31, 1994, the Company ceased depreciating its field support spares and commenced recording the purchase of all new field support spares as cost of service currently. REORGANIZATION CHARGES - BANKRUPTCY For the first quarter 1995, reorganization charges includes fees and other charges related to the Company's reorganization under Chapter 11. The majority of the costs are legal and consulting fees associated with the bankruptcy. The increase in fees and other charges related to the bankruptcy resulted in the increase in accrued expenses from July 31, 1994 to October 31, 1994. INTEREST EXPENSE Interest expense decreased $1.1 million (or 66.1%) for the first quarter 1995 compared to the same period in 1994. The decline was largely due to the suspension of the accrual of interest expense associated with the 11.99% Subordinated Debentures following the filing of Chapter 11. FEDERAL AND STATE INCOME TAX BENEFIT The tax benefit of $1.2 million during the first quarter 1994 was the result of the change in the valuation allowance associated with the tax refunds previously received. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company filed a Voluntary Petition on August 5, 1994 under Chapter 11 of the United States Bankruptcy Court. A Disclosure Statement to the Plan of Reorganization of the Company was approved by the Court. The Company's Plan was confirmed by the Court on November 22, 1994. See Note 4 to the Consolidated Financial Statements for further discussion. Two shareholders of the Company have filed lawsuits against the Company and its Board of Directors demanding that the Company seek damages from its Board of Directors with respect to the Company's 1990 purchases of the stock of the Company and Datapoint. A committee of the Board of Directors was appointed to consider the demands raised in each case. The committee retained independent counsel to review the matters raised in the lawsuits and determined that it was not in the best interest of either the Company or its shareholders to accept either demand and, accordingly, instructed counsel to seek the dismissal of both lawsuits. In January 1992, a motion for summary judgment on behalf of the Company and the Board of Directors was denied in the lawsuit pending in the New York State Court and is currently on appeal. A similar motion, involving only the Company's purchase of its own stock, was denied with leave to renew after the appeal in the New York State Court action is decided. The second case is pending in the United States District Court for the Southern District of New York. This action charged a violation of the proxy laws and breach of fiduciary duties with respect to several actions by the Board, including the purchase of the Company's own stock. In June 1993, another shareholder commenced a derivative action against certain members of the Company's Board of Directors and Datapoint. Because this latest action is substantially similar to one of the previously filed suits, the plaintiffs in the latest action have filed a motion to dismiss their complaint without prejudice. On May 13, 1994, the Company announced that although it and the Board of Directors expressly disclaim and deny any liability or wrongdoing with respect to the allegations, a settlement had been reached in order to avoid the additional expense, burden, inconvenience and distraction of continued litigation. Pursuant to the settlement agreement, which is subject to Bankruptcy and District Court approval, the Company will receive $2.4 million less attorney's fees and expenses (not to exceed $800,000) awarded by the Court. In addition, the Company has agreed to form a committee of the Board to address and approve certain matters relating to the Company's current and prospective investments. The cash portion of the settlement is fully covered by the Company's director and officer liability insurance but may be offset in whole or in part by future director and officer liability insurance premium increases. A United States District Judge for the Southern District of New York has held a hearing concerning the fairness of the proposed settlement. However, no opinion has yet been issued. The Judge has referred the case to the Bankruptcy Court for further adjudication consistent with bankruptcy laws. Due to the current uncertainty as to any recovery, the Company has not recorded any receivable. The Judge held a hearing on this matter on November 28, 1994 and has requested that the parties submit briefs on certain matters. The matter is still under advisement. On October 4, 1994, certain Debentureholders filed an adversary proceeding in the Bankruptcy Court against the Company alleging securities law violations and certain other common law causes of action. The litigation relates to the Company's purchases of securities, including Datapoint Stock and related actions. The plaintiffs in the adversary proceeding seek monetary damages, attorney's fees, and costs of suit. A hearing for this matter is scheduled for January 23, 1995. The IRS has issued assessment letters relating to the consolidated federal income tax returns of the Company for the years 1986 through 1992. The IRS letters propose assessments totaling $31.0 million in additional taxes plus interest. The assessment primarily involves the industry-wide issue of the appropriate method for cost recovery of spare parts. A recent case on the same issue was decided in the taxpayer's favor by the United States Tax Court, but is being appealed by the IRS. If the decision was followed by courts with jurisdiction over the Company, the remaining proposed assessment would be approximately $2.5 million in additional taxes plus interest. The Company strongly disagrees with the proposed adjustments and has filed a protest, appealing each of the adjustments in the IRS report. During 1994, the Company negotiated a settlement with the IRS and on October 3, 1994, the IRS appeals officer provided the Company a settlement document indicating a refund of $1.1 million net of interest costs. The IRS settlement document is subject to approval by the Joint Committee of Congress and therefore, the ultimate outcome cannot presently be determined. Accordingly, the Company has not recorded a receivable for any possible refund. The Company is a party to various legal proceedings in the ordinary course of business. The Company believes that there is no proceeding either threatened or pending against the Company that could result in a materially adverse effect on the business or the financial condition of the Company. ITEM 5. OTHER INFORMATION On December 8, 1994, the New York Stock Exchange suspended trading of the Company's common stock and 11.99% Subordinated Debentures based on the failure of the Company to meet the continued listing criteria of the New York Stock Exchange. The Company's common stock commenced trading under the symbol "ITLG" on the OTC Bulletin Board Service on December 13, 1994. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 2.0 - Modified First Amended Plan of Reorganization of the Company, dated October 12, 1994 (filed as Exhibit 99 to the 1994 Form 10-K and incorporated herein by reference). 3.1 - Restated Certificate of Incorporation of the Company effective December 9, 1994. 3.2 - By-laws of the Company, as amended (filed as Exhibit 3.2 to Form 10, Amendment No. 2 and incorporated herein by reference). 4.1 - Form of 11.99% Subordinated Debenture due July 15, 1996 (filed as Exhibit 4(a) to the Company's Registration Statement on Form S-1 filed with the Commission on July 22, 1986 (the "Form S-1") and incorporated herein by reference). 4.2 - Form of Indenture between the Company and Manufacturers Hanover Trust Company, as Trustee, relating to the Debentures registered (filed as Exhibit 4(b) to the Form S-1 and incorporated herein by reference). 4.3 - Indenture dated October 1, 1985 between the Company and the Manufacturers Hanover Trust Company, as Trustee, relating to the 14 1/2% Subordinated Notes Due 1995 (filed as Exhibit (c) to Amendment No. 2 on Form 8 to the Company's Registration Statement on Form 8-A filed with the Commission on September 19, 1985 and incorporated herein by reference). 4.4 - Article Fourth of the Certificate of Incorporation of the Company (included in Exhibit 3.1). 4.5 - Registration Rights Agreement, among the Company, Fidelity Capital and Income Fund and Salvatore Curiale, Superintendent of Insurance of the State of New York, as rehabilitator for Executive Life of New York, dated as of December 8, 1994. 10.1 - Agreement for Transfer of Assets and Liabilities in Exchange for Stock, dated June 29, 1985, between Datapoint and the Company (filed as Exhibit 10.1 to the Form 10 and incorporated herein by reference). 10.2 - Master Maintenance Agreement, dated June 28, 1985, between Datapoint and the Company (filed as Exhibit 10.2 to the Form 10 and incorporated herein by reference). 10.3 - Assignment and License, dated as of June 29, 1985, between the Company and Datapoint (filed as Exhibit 10.3 to the Form 10 and incorporated herein by reference). 10.4 - Datapoint License Agreement, dated as of June 29, 1985, between the Company and Datapoint (filed as Exhibit 10.4 to the Form 10 and incorporated herein by reference). 10.5 - I T License Agreement, dated as of June 29, 1985, between the Company and Datapoint (filed as Exhibit 10.5 to the Form 10 and incorporated herein by reference). 10.6 - Employment Agreement, dated January 27, 1986, between Philip D. Freeman and the Company (filed as Exhibit 10(j) to the Form S-1 and incorporated herein by reference). 10.7 - 1985 Directors Stock Option Plan (filed as Exhibit 10.10 to the Form 10 and incorporated herein by reference). 10.8 - 1985 Employee Stock Option Plan (filed as Exhibit 10.11 to the Form 10 and incorporated herein by reference). 10.9 - Retirement Income Plan (filed as Exhibit 10.12 to the Form 10 and incorporated herein by reference). 10.10 - Executive Benefit Plan (filed as Exhibit 10.14 to the Form 10 and incorporated herein by reference). 10.11 - Directors' and Officers' Liability Insurance Policy (filed as Exhibit 10(s) to the Form S-1 and incorporated herein by reference). 10.12 - TexCom Purchase Agreement, dated November 25, 1987, between the Company and TexCom, Inc. (filed as Exhibit C(2) to the Form 8-K filed with the Commission on December 9, 1987 and incorporated herein by reference). 10.13 - Amendment to the 1985 Directors Stock Option Plan (filed as Exhibit 10(o) to the 1989 Form 10-K and incorporated herein by reference). 10.14 - First Amendment to the TexCom Purchase Agreement, dated June 20, 1989, between the Company and TexCom, Inc. (filed as Exhibit 10(v) to the 1989 Form 10-K and incorporated herein by reference). 10.15 - Acquisition Agreement, dated November 9, 1990, between Datapoint and the Company (filed as Exhibit 10(v) to the 1990 Form 10-K and incorporated herein by reference). 10.16 - Option Agreement, dated November 9, 1990, between Datapoint and the Company (filed as Exhibit 10(w) to the 1990 Form 10-K and incorporated herein by reference). 10.17 - Employment Agreement, dated July 1, 1991, between Asher B. Edelman and the Company (filed as Exhibit 10(s) to the 1991 Form 10-K and incorporated herein by reference). 10.18 - Intelogic Trace, Inc. 401(k) Retirement Savings Plan (filed as Exhibit 10.22 to the 1992 Form 10-K and incorporated herein by reference). 10.19 - Purchase Agreement, dated June 23, 1992, between Gemini Systems Leasing Corp., Intelogic Trace TexCom Group, Inc. and The Lockwood Association, Inc. (filed as Exhibit 10.23 to the 1992 Form 10-K and incorporated herein by reference). 10.20 - First Amendment to Purchase Agreement, dated June 23, 1992, between Gemini Systems Leasing Corp., Intelogic Trace TexCom Group, Inc. and The Lockwood Association, Inc. (filed as Exhibit 10.24 to the 1992 Form 10-K and incorporated herein by reference). 10.21 - First Amendment to the Employment agreement, dated July 1, 1991, between Asher B. Edelman and the Company (filed as Exhibit 10.29 to the 1992 Form 10-K and incorporated herein by reference). 10.22 - Second Amendment to the Employment Agreement, dated July 1, 1991, between Asher B. Edelman and the Company (filed as Exhibit 10.35 to the 1992 Form 10-K and incorporated herein by reference). 10.23 - First Amendment to the Employment Agreement, dated July 28, 1991, between Mark S. Helwege and the Company (filed as Exhibit 10.36 to the 1992 Form 10-K and incorporated herein by reference). 10.24 - Employment Agreement, dated August 1, 1993, between Martin J. Landon and the Company (filed as Exhibit 10.37 to the 1993 Form 10-K and incorporated herein by reference). 10.25 - Employment Agreement, dated October 26, 1992, between John Alexander Wilder and the Company (filed as Exhibit 10.38 to the 1993 Form 10-K and incorporated herein by reference). 10.26 - Employment Agreement, dated November 2, 1992, between Michael E. Schultz and the Company (filed as Exhibit 10.39 to the 1993 Form 10-K and incorporated herein by reference). 10.27 - Second Amendment to the Employment Agreement, dated July 28, 1991, between Mark S. Helwege and the Company (filed as Exhibit 10.27 to the 1994 Form 10-K and incorporated herein by reference). 10.28 - Second Amendment to the Employment Agreement dated January 27, 1986, between Philip D. Freeman and the Company (filed as Exhibit 10.28 to the 1994 Form 10-K and incorporated herein by reference). 10.29 - Agreement, dated September 27, 1994, between the Company and Datapoint Corporation (filed as Exhibit 10.29 to the 1994 Form 10-K and incorporated herein by reference). 10.30 - Final Order Authorizing Use of Cash Collateral, Post-Petition Financing, and Grant of Security Interest (describing debtor-in-possession Financing Facility between the Company and Foothill Capital Corporation) dated September 16, 1994 (filed as Exhibit 10.30 to the 1994 Form 10-K and incorporated herein by reference). 10.31 - Final Order (1) Authorizing the Debtor to Incur Secured Priority Administrative Indebtedness Pursuant to Section 364 (c) of the Bankruptcy Code, (2) Granting Security Interests, (3) Approving Agreement Related to the Foregoing and (4) Granting Other Relief (describing the loan agreement between Fidelity Capital and Income Fund and the Company) dated November 8, 1994 (filed as Exhibit 10.31 to the 1994 Form 10-K and incorporated herein by reference). 10.32 - Master Repair Services and Spare Parts Supply Agreement between PC Service Source, Inc. and the Company, dated November 17, 1994. 10.33 - Employment Agreement between the Company and Mark S. Helwege, dated December 1, 1994. 10.34 - Employment Agreement between the Company and Philip D. Freeman, dated December 1, 1994. 10.35 - Loan and Security Agreement, between Fidelity Capital & Income Fund and the Company, dated as of December 8, 1994. 10.36 - Settlement Agreement, between the Pension Benefit Guaranty Corporation, the Company, Intelogic Trace Systems Group, Inc., Intelogic Trace Canada, Inc., ITTG, Inc., TLA, Inc., and Intelogic Trace Marion Group of Puerto Rico, Inc., dated as of November 22, 1994. 10.37 - Amended and Restated General Loan and Security Agreement between Foothill Capital Corporation and the Company, dated December 8, 1994. 11 - Computation of Earnings Per Share. 27 - Financial Data Schedule for the three months ended October 31, 1994. (b) REPORTS ON FORM 8-K: During the quarter ended October 31, 1994, the Company filed the following current reports on Form 8-K: DATE FILED DESCRIPTION - ---------- ----------- August 5, 1994 Form 8-K reported the Company's filing of a voluntary petition on August 5, 1994 under Chapter 11 of the Bankruptcy Act, Case No. 94-52172-C, in the United States Bankruptcy Court, Western District of Texas, San Antonio Division, Judge Leif M. Clark presiding. September 16, 1994 Form 8-K announced the hiring of Ellen Kipfer as vice president of the Company's marketing and field support organization headquartered in San Antonio. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: December 14, 1994 INTELOGIC TRACE, INC. (Registrant) By /S/ MIKE R. ELLIS Mike R. Ellis Vice President and Chief Financial Officer (Duly Authorized Officer and Principal Financial and Accounting Officer) EX-3.5 2 RESTATED CERT. OF INCORPORATION EXHIBIT 3.5 RESTATED CERTIFICATE OF INCORPORATION OF INTELOGIC TRACE, INC. UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW It is hereby certified that: 1. The name of the corporation (hereinafter called the "Corporation") is INTELOGIC TRACE, INC. The date of filing of the original Certificate of Incorporation of the Corporation with the Secretary of State of the State of New York was June 24, 1985. 2. The Restated Certificate of Incorporation hereby adopted restates, integrates and further amends the Certificate of Incorporation of the Corporation as in effect on the date hereof by striking out Articles FIRST through NINTH thereof and substituting in lieu thereof new Articles FIRST through NINTH which are set forth in the Restated Certificate of Incorporation below. 3. In connection with such amendment, effective upon the filing of this Restated Certificate of Incorporation with the Secretary of State of the State of New York, (i) each four (4) Common Shares, par value $.01, of the Corporation issued and outstanding immediately prior to the filing of this Restated Certificate of Incorporation shall thereby and thereupon be combined into and shall constitute and represent one (1) validly issued, fully paid and nonassessable Common Share, par value $.01, of the Corporation, (ii) there shall be transferred from the stated capital account of the Corporation to its earned surplus account $.01 for each share eliminated in respect of such combination, (iii) fractional share interests created as a result of this combination shall be rounded up to the next whole number of shares by the Corporation, and (iv) the Board of Directors of the Corporation shall be reconstituted by the removal from the Board of Directors, without cause, of all directors of the Corporation in office immediately prior to the filing hereof and the appointment, effective upon the filing hereof, of the following individuals as directors of the Corporation, each to serve until the next annual meeting of the shareholders of the Corporation and the election and qualification of his successor or until his earlier death, resignation, removal or incapacity: Kevin P. 1 Collins, Mark S. Helwege, Henry F. Owsley, Lawrence C. Petrucci and Frank Terry A. Savage. The number of Common Shares and Preferred Shares authorized prior to and after the filing of this Restated Certificate of Incorporation does not change. All shares of Preferred Stock issued and outstanding immediately prior to the filing of this Restated Certificate of Incorporation shall thereby and thereupon be cancelled. The 5,000,000 shares of Preferred Stock designated as 10% Preferred Shares constitute a new series of Preferred Stock. 4. The Restated Certificate of Incorporation of the Corporation certified herein has been duly made, executed and acknowledged in accordance with the provisions of Section 808 of the Business Corporation Law of the State of New York, pursuant to a plan of reorganization under chapter 11 of title 11 of the United States Code, which has been confirmed by Final Order entered November 28, 1994 of the United States Bankruptcy Court for the Western District of Texas, San Antonio Division, the court having jurisdiction over the Corporation's chapter 11 case, which order is in effect on the date hereof. 5. The Restated Certificate of Incorporation of the Corporation shall become effective upon the filing hereof with the Secretary of State of the State of New York and shall read as follows: FIRST: The name of the corporation is INTELOGIC TRACE, INC. (hereinafter referred to as the "Corporation"). SECOND: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Business Corporation Law of the State of New York (the "Business Corporation Law"). The Corporation is not being formed to engage in any act or activity requiring the consent or approval of any state official, department, board, agency or other body without such consent or approval first being obtained. THIRD: The county within the State of New York in which the office of the Corporation is to be located is the county of New York. FOURTH: The Corporation is authorized to issue 40,000,000 common shares, par value $.01 per share ("Common 2 Shares"), and 20,000,000 preferred shares, par value $.01 per share, of which 5,000,000 shares shall be designated as "10% Preferred Shares." No nonvoting securities of the Corporation shall be issued; this provision is included in this Restated Certificate of Incorporation in compliance with section 1123 of the Bankruptcy Code, 11 U.S.C. ss. 1123, and shall have no force or effect except to the extent, and only for so long as, such section is applicable to the Corporation. The rights, preferences, privileges and restrictions granted to and imposed upon the 10% Preferred Shares are set forth as follows: 1. DIVIDENDS. So long as any 10% Preferred Shares shall be outstanding, the holders of such 10% Preferred Shares shall be entitled to receive, when and as declared by the Board of Directors, out of any funds legally available therefor, cumulative preferential dividends in cash, payable quarterly on the first business day of each January, April, July and October, commencing on April 3, 1995, or if such date is not a business day, on the immediately succeeding business day (each a "Dividend Payment Date"), in an amount equal to (i) $.4695 per share for the Dividend Payment Date on April 3, 1995 and (ii) for each Dividend Payment Date thereafter, the sum of (A) $.375 per share plus (B) an additional amount calculated at a rate of 10% per annum on the amount of any dividends payable prior to such Dividend Payment Date that remained unpaid during the quarterly period ending on such Dividend Payment Date. Dividends on the 10% Preferred Shares shall accumulate and accrue from the date of issuance thereof and shall accrue from day to day thereafter, whether or not earned or declared. 2. PREFERENCE ON LIQUIDATION. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the 10% Preferred Shares then outstanding shall be entitled to be paid an amount equal to the Liquidation Preference (as hereinafter defined) of the 10% Preferred Shares out of the assets of the Corporation available for distribution to its shareholders, whether such assets are capital, surplus or earnings, before any payment or declaration and setting apart for payment of any amount shall be made in respect of the Common Shares or any preferred shares ranking junior to the 10% Preferred Shares 3 as to dividends or upon liquidation, dissolution or winding up of the Corporation. The "Liquidation Preference" of the 10% Preferred Shares shall be $15.00 per share PLUS an amount equal to all accrued and unpaid dividends thereon, whether or not earned or declared, to and including the date of payment in connection with such liquidation, dissolution or winding up. If upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed to the holders of the 10% Preferred Shares shall be insufficient to permit the payment to such shareholders of the full preferential amounts aforesaid, then all of such assets of the Corporation shall be distributed ratably to the holders of the 10% Preferred Shares in proportion to the amounts that each would have been entitled to receive if the Corporation's assets were sufficient to permit distribution to the full extent provided for above. 3. REDEMPTIONS. (a) MANDATORY REDEMPTION. On December 8, 2004 (the "Mandatory Redemption Date"), the Corporation shall redeem, from funds legally available therefor, all of the then outstanding 10% Preferred Shares at a redemption price per 10% Preferred Share equal to the Liquidation Preference determined in accordance with paragraph 2 of this Article Fourth. In the event the Corporation does not have surplus legally available to redeem all of the then outstanding 10% Preferred Shares, (i) the Corporation shall first redeem the maximum number of 10% Preferred Shares that it may redeem with the surplus legally available therefor pro rata to the holders of the 10% Preferred Shares, based on the number of shares held by each such holder and (ii) the Corporation shall redeem the remainder of the 10% Preferred Shares as soon as it has surplus legally available to do so. (b) COMPANY OPTIONAL REDEMPTION. To the extent the Corporation shall have funds legally available therefor, the Corporation may, upon notice as provided in paragraph 3(d), redeem all or any portion of the 10% Preferred Shares then outstanding at a redemption price per 10% Preferred Share equal to the Liquidation Preference determined in accordance with paragraph 2 of this Article Fourth. 4 If less than all of the 10% Preferred Shares at the time outstanding are to be redeemed, the shares so to be redeemed shall be determined pro rata to the holders of 10% Preferred Shares, based on the number of shares held by each such holder, or in such other manner as the Board of Directors may determine to be fair and proper. (c) 10% PREFERRED SHAREHOLDER OPTIONAL REDEMPTION. In the event that (i) the Corporation agrees to sell, assign, transfer or lease all or substantially all of its assets to any person or group (as such terms are defined in Rule 13d under the Securities Exchange Act of 1934, as amended) or (ii) any person or group (as such terms are defined in Rule 13d under the Securities Exchange Act of 1934, as amended), other than any record owner of not less than 10% of the issued and outstanding Common Shares of the Corporation on the date of original issuance of the 10% Preferred Shares, shall become the record owner (whether pursuant to a stock purchase, merger, consolidation, other business combination or otherwise) of a majority of the Common Shares of the Corporation, the Corporation shall provide each holder of the 10% Preferred Shares with written notice, at such holder's address as the same appears on the books of the Corporation or any transfer agent for the 10% Preferred Shares, of the occurrence of such event and the right of such holder to cause the Corporation to redeem the 10% Preferred Shares pursuant to this paragraph 3(c). At the written request of any holder of the 10% Preferred Shares received by the Corporation within 20 business days after delivery of the Corporation's notice pursuant to the preceding sentence, the Corporation shall redeem any or all shares of 10% Preferred Shares owned of record by such holder at the Liquidation Preference upon the later to occur of the consummation of the transaction giving rise to such right of redemption or the surrender of stock certificates as provided in paragraph 3(e). (d) NOTICE. The Corporation shall, not less than 30 days nor more than 60 days prior to any redemption date pursuant to paragraph 3(a) or (b), mail written notice (the "Redemption Notice"), postage prepaid, to each holder of record of 10% Preferred Shares to be redeemed at such holder's post office address last shown on the records of the Corporation or any transfer agent for the 10% Preferred Shares. The Redemption Notice shall state: 5 (i) the total number of 10% Preferred Shares that the Corporation intends to redeem; (ii) the number of 10% Preferred Shares held of record by the holder that the Corporation intends to redeem; (iii) the redemption date and the redemption price of the 10% Preferred Shares that the Corporation intends to redeem; (iv) the time, place and manner in which the holder is to surrender to the Corporation the certificate or certificates representing the 10% Preferred Shares to be redeemed; and (v) that dividends on the 10% Preferred Shares to be redeemed will cease to accrue on such redemption date. (e) Each holder of 10% Preferred Shares to be redeemed pursuant to this paragraph 3 shall tender the certificate or certificates representing the shares subject to redemption to the Corporation at its principal executive office or to the transfer agent for the 10% Preferred Shares, if any, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto) and accompanied by written notice specifying, if all the shares represented by the certificates so surrendered are not subject to redemption, the number of shares surrendered for redemption, and the name or names of the person or persons to whom such holder wishes payment for the shares to be redeemed to be made and in which the certificate or certificates for any shares not redeemed should be registered and the address to which payment for redeemed shares and such certificate or certificates, if any, should be sent, and such holder shall thereupon be entitled to payment of the redemption price, subject to the provisions of paragraph 7 of this Article Fourth regarding payment of taxes, by check made payable to the order of the person so designated sent by first-class mail, postage prepaid, to the address so designated, as soon as practicable after the redemption date. In case less than all of the shares represented by any such surrendered certificates are to be redeemed, the Corporation shall, subject to the provisions of paragraph 7 of this Article Fourth regarding payment of taxes, issue and deliver in the 6 same manner a new certificate or certificates representing the shares not redeemed in the name or names so requested. (f) Any redemption of 10% Preferred Shares pursuant to paragraph 3(a) or (b) of this Article Fourth shall be effective as of the close of business on the date fixed for redemption by the Board of Directors (which date shall be not less than thirty (30) days after the Corporation shall have given notice of redemption). Prior to the effective date of any redemption pursuant to this paragraph 3, holders of 10% Preferred Shares subject to redemption shall be entitled to all powers, rights and preferences attributable to such shares, but after such effective date, if the funds necessary for the redemption shall be available therefor, such shares shall no longer be deemed to be outstanding, and a holder of such shares shall be entitled to no further dividends, powers, preferences or other rights as a shareholder of the Corporation, other than the right to receive payment of the redemption price upon surrender of the certificates representing such shares in accordance with this paragraph 3. (g) No sinking fund shall be created for the redemption or purchase of the 10% Preferred Shares. 4. VOTING RIGHTS. (a) LIMITED VOTING RIGHTS. The holders of 10% Preferred Shares shall not be entitled to any voting rights except as otherwise provided by law or as set forth in paragraphs (b) and (c) below. (b) RIGHT TO ELECT DIRECTORS. (i) Whenever quarterly dividends payable (whether or not declared) on the 10% Preferred Shares as provided in paragraph 2 are in arrears in an aggregate amount at least equal to four full quarterly dividends (which need not be consecutive) or if the Corporation defaults on its redemption obligations pursuant to paragraph 3(a) or 3(c) hereof, the number of directors constituting the Board of Directors of the Corporation shall, without further action, be increased by two (the "Additional Directors") and the holders of the 10% Preferred Shares shall have, in addition to the rights set forth in paragraph 4(c), the special right, voting separately as a single class, to elect two directors to fill such newly created directorships at a special meeting called in accordance with paragraph 4(b)(v) or at the next succeeding annual meeting of shareholders (and at each 7 succeeding annual meeting of shareholders thereafter until such right shall terminate as hereinafter provided). (ii) At each meeting of shareholders at which the holders of the 10% Preferred Shares shall have the right to vote as a class, as provided in this paragraph 4(b) and in paragraph 4(c), the presence in person or by proxy of the holders of record of a majority of the total number of 10% Preferred Shares then outstanding shall be necessary and sufficient to constitute a quorum of such class for such election by such shareholders as a class. At any such meeting or adjournment thereof, (x) the absence of a quorum of holders of the 10% Preferred Shares shall not prevent the election of directors other than those to be elected by the holders of the 10% Preferred Shares and the absence of a quorum of the holders of any other class of shares for the election of such other directors shall not prevent the election of the Additional Directors by the holders of the 10% Preferred Shares, and (y) in the absence of a quorum of the holders of the 10% Preferred Shares, a majority of the holders present in person or by proxy shall have the power to adjourn the meeting from time to time and place to place without notice other than announcement at the meeting until a quorum shall be present. At any such meeting or adjournment thereof, the affirmative vote of a majority of the quorum shall constitute the action of the holders of the 10% Preferred Shares. Any action to be taken by holders of the 10% Preferred Shares may be taken by written consent of the holders of a majority of the then outstanding 10% Preferred Shares. (iii) Subject to the termination of voting rights as set forth in paragraph 4(vi) below, each Additional Director shall hold office for one year and until his successor, if any, is elected by the holders of the 10% Preferred Shares and qualified, or until his earlier death, resignation, removal or incapacity. (iv) An Additional Director may be removed with or without cause only by the holders of the 10% Preferred Shares. If an Additional Director shall resign, die or be removed, such vacancy may be filled for the unexpired portion of the term by vote of the remaining Additional Director theretofore elected by such shareholders, or such director's successors in office, or by the vote of such shareholders given at a special meeting of such shareholders called for that purpose. 8 (v) Whenever the voting rights set forth in this paragraph 4(b) have vested, the Secretary of the Corporation may, and upon the written request of any holder of the 10% Preferred Shares (addressed to the Secretary at the principal office of the Corporation) shall, call a special meeting of the holders of the 10% Preferred Shares to elect the Additional Directors, such call to be made by notice similar to that provided in the By-laws of the Corporation for a special meeting of the shareholders or as then required by applicable law. If any such special meeting required to be called as provided above shall not be called by the Secretary within 20 days after receipt of any such request, then any holder of the 10% Preferred Shares may call such meeting upon the notice provided above, and for that purpose shall have access to the 10% Preferred Share Register. Notwithstanding anything herein contained, the Corporation shall not be required to call a special meeting for any date less than 30 days prior to a date previously fixed for any annual or special meeting or prior to the date fixed by the By-laws of the Corporation for the annual meeting, provided that in case the Corporation shall not be required to call a special meeting, the holders of the 10% Preferred Shares may elect the Additional Directors referred to in this paragraph 4(b) at such special or annual meeting on the date previously fixed. (vi) Whenever all dividends accrued and unpaid on the 10% Preferred Shares shall have been paid and dividends thereon for the current quarterly period shall have been paid or declared and set apart for payment and if the Corporation is not then in default of its mandatory redemption obligation under paragraph 3(a), the special right of the holders of the 10% Preferred Shares to elect directors as provided in this paragraph 4(b) shall terminate, the term of office of the Additional Directors shall forthwith, and without further action on the part of the Corporation, expire and the number of directors constituting the Board of Directors shall, without further action, be reduced by the number of Additional Directors, but subject always to the same provisions for the re-vesting of such special right of the holders of the 10% Preferred Shares to elect directors as hereinabove provided. (c) CERTAIN ACTIONS. (i) So long as any 10% Preferred Shares are outstanding, the Corporation shall not declare or pay any dividends on, or any other distribution of any kind in respect of, the Corporation's Common Shares 9 or any preferred shares ranking junior to the 10% Preferred Shares as to dividends or upon liquidation, dissolution or winding up of the Corporation, or make, directly or indirectly, any payment on account of the purchase, redemption or other acquisition of the Common Shares or such preferred shares ranking junior to the 10% Preferred Shares, unless concurrently with or prior to such payment all 10% Preferred Shares then outstanding shall have been redeemed in accordance with paragraph 3 of this Article Fourth; PROVIDED, HOWEVER, that this restriction shall not apply to the repurchase of Common Shares or preferred shares from employees of the Corporation or any of its subsidiaries pursuant to agreements under which the Corporation has the option to repurchase such shares upon the termination of employment by or service to the Corporation or any of its subsidiaries. (ii) So long as any 10% Preferred Shares are outstanding, the Corporation shall not, without approval by vote or written consent of the holders of the outstanding 10% Preferred Shares in accordance with paragraph 4(b)(ii), voting as a class, in person or by proxy, at a special or annual meeting of shareholders called for that purpose, effect or validate (1) the creation or authorization of any additional class or series of shares ranking senior to or on parity with the 10% Preferred Shares (either as to dividends or upon liquidation, dissolution or winding up); or any increase in the authorized number of 10% Preferred Shares or of any other class or series of preferred shares ranking senior to or on parity with the 10% Preferred Shares (either as to dividends or upon liquidation, dissolution or winding up); or the creation or authorization of any obligation or security convertible into preferred shares of any class or series ranking senior to or on parity with the 10% Preferred Shares (either as to dividends or upon liquidation, dissolution or winding up), whether any such creation or authorization or increase shall be by means of amendment of the Certificate of Incorporation of the Corporation, merger, consolidation or otherwise; (2) the issuance of any 10% Preferred Shares other than the 10% Preferred Shares issued in connection with the consummation of the Corporation's Plan of Reorganization, as amended, under Chapter 11 of the U.S. Bankruptcy Code; or (3) the amendment, alteration or repeal of any provision of this Restated Certificate of Incorporation in any manner which would materially alter the relative rights and preferences of the 10% Preferred Shares so as to adversely affect the holders thereof. 10 (iii) So long as any 10% Preferred Shares remain outstanding, the Corporation shall not, and shall not permit any subsidiary to, without approval by vote or written consent of the holders of the outstanding 10% Preferred Shares in accordance with paragraph 4(b)(ii), voting as a class, in person or by proxy, at a special or annual meeting of shareholders called for that purpose: (w) redeem, purchase or otherwise acquire for value, any 10% Preferred Share except by redemption in accordance with paragraph 3 hereof; (x) institute proceedings to be adjudicated bankrupt or insolvent, or consent to the institution of bankruptcy or insolvency proceedings against it, or consent to, or file a petition seeking, reorganization or relief under any applicable federal or state law relating to bankruptcy, or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Corporation or a substantial part of its property, or make any assignment for the benefit of creditors, or admit in writing its inability to pay its debts generally as they become due, or take corporate action in furtherance of any such action; or (y) enter into any agreement, contract or understanding or otherwise incur any obligation which by its terms would violate, be in conflict with, or restrict the rights of the holders of 10% Preferred Shares hereunder or the Corporation's performance of the terms of this Restated Certificate of Incorporation. 5. NO REISSUANCE OF 10% PREFERRED SHARES. No 10% Preferred Shares acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the Corporation shall be authorized to issue. 6. WAIVERS. With the written consent of the holders of 10% Preferred Shares that would otherwise be required to amend a particular provision of this Article Fourth, the obligations of the Corporation and the rights of the holders of the 10% Preferred Shares under such provision of this Article Fourth may be waived (either 11 generally or in a particular instance, either retroactively or prospectively and either for a specified period of time or indefinitely). Upon the effectuation of each such waiver, the Corporation shall promptly give written notice thereof to the holders of 10% Preferred Shares who have not previously consented thereto in writing. 7. MISCELLANEOUS. (a) The Corporation shall pay any and all stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of 10% Preferred Shares. The Corporation shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issuance and delivery of 10% Preferred Shares or other securities in a name other than that in which the 10% Preferred Shares with respect to which such shares are issued were registered, or any payment to any person other than the registered holder thereof, and shall not be required to make any such issuance or delivery unless and until the person otherwise entitled to such issuance or payment has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid or is not payable. (b) In the event a holder of 10% Preferred Shares shall not by written notice designate the name in which payment upon redemption of 10% Preferred Shares should be made or the address to which the certificate or certificates representing such shares, or such payment, should be sent, the Corporation shall be entitled to register such shares, and make such payment, in the name of the holder of such 10% Preferred Shares as shown on the records of the Corporation or any transfer agent for the 10% Preferred Shares and to send the certificate or certificates representing such shares, or such payment, to the address of such holder on the records of the Corporation or any transfer agent for the 10% Preferred Shares. (c) In respect to the payment of dividends and distributions upon liquidation, dissolution or winding up of the affairs of the Corporation, the 10% Preferred Shares shall rank senior to each and every other class or series of common shares and preferred shares of the Corporation now or hereafter existing which by its terms ranks junior to the 10% Preferred Shares (it being understood that consent to the creation of a series or class of stock ranking senior to 12 the 10% Preferred Shares must be obtained pursuant to Section 4 of this Article Fourth). (d) The Corporation may appoint, and from time to time discharge and change, a transfer agent for the 10% Preferred Shares. Upon any such appointment or discharge of a transfer agent, the Corporation shall send notice thereof by first-class mail, postage prepaid, to each holder of record of 10% Preferred Shares. (e) The Corporation shall maintain at its principal executive offices and at the office of the transfer agent, if any, for the 10% Preferred Shares a copy of this Restated Certificate of Incorporation, which shall be available for inspection during ordinary business hours by any holder of 10% Preferred Shares, and any such holder may copy or take extracts therefrom, or obtain, without charge, a copy thereof upon written request to the Corporation, attention: Secretary. (f) Except as may otherwise be required by the Business Corporation Law, the holders of 10% Preferred Shares shall not have any powers, preferences and relative, participating, optional or other special rights other than those specifically set forth in this Restated Certificate of Incorporation of the Corporation. (g) If any provision of this Article Fourth is determined to be invalid, unlawful or unenforceable by reason of any rule of law or public policy, all provisions set forth herein which can be given effect without giving effect to the invalid, unlawful or unenforceable provision shall, nevertheless, remain in full force and effect, and no provision hereof shall be deemed dependent upon any other provision hereof, unless so expressed herein. FIFTH: No holder of shares of the Corporation of any class, now or hereafter authorized, shall have any preferential or preemptive right to subscribe for, purchase or receive any shares of the Corporation of any class, now or hereafter authorized, or any options or warrants for such shares, or any rights to subscribe to or purchase such shares, or any securities convertible to or exchangeable for such shares, which may at any time be issued, sold or offered for sale by the Corporation. 13 SIXTH: The Secretary of State of the State of New York is designated as the agent of the Corporation upon whom process against the Corporation may be served. The post office address within or without the State of New York to which the Secretary of State shall mail a copy of any process against the Corporation served upon such Secretary of State is Intelogic Trace, Inc., 8415 Datapoint Drive, San Antonio, Texas 78229-8480, attention: General Counsel. SEVENTH: A director shall not be personally liable to the Corporation or its shareholders for damages for any breach of duty as a director, except for any matter in respect of which such director shall be liable by reason that, in addition to any and all other requirements for such liability, there shall have been a judgment or other final adjudication adverse to such director that establishes that such director's acts or omissions were in bad faith or involved intentional misconduct or a knowing violation of law or that such director personally gained in fact a financial profit or other advantage to which such director was not legally entitled or that such director's acts violated Section 719 of the Business Corporation Law. Neither the amendment nor the repeal of this Article shall eliminate or reduce the effect of this Article in respect to any matter occurring, or any cause of action, suit or claim that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. This Article shall neither eliminate nor limit the liability of a director for any act or omission occurring prior to the adoption of this Article. EIGHTH: The Corporation shall indemnify, to the extent permitted by the Business Corporation Law, as amended from time to time, all current, former and future directors and officers of the Corporation whom it is permitted to indemnify pursuant thereto. Directors whose services terminated on or before the Effective Date of the Plan of Reorganization shall be indemnified solely in accordance with the terms and provisions of such Plan. NINTH: Subject to any limitations contained elsewhere in this Restated Certificate of Incorporation, By-laws of the Corporation may be adopted, amended or repealed by a majority of the Board of Directors of the Corporation, but any By-laws adopted by the Board may be amended or repealed by the shareholders entitled to vote thereon. Except as may otherwise be specifically provided in this 14 Restated Certificate of Incorporation, no provision of this Restated Certificate of Incorporation is intended by the Corporation to be construed as limiting, prohibiting, denying or abrogating any of the general or specific powers or rights conferred under the Business Corporation Law upon the Corporation, upon its shareholders, bondholders and security holders, and upon its directors, officers and other corporate personnel. [REMAINDER OF PAGE IS INTENTIONALLY LEFT BLANK] 15 IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed by Mike R. Ellis, its Vice President and Chief Financial Officer, and affirmed by Philip D. Freeman, its Secretary, as of the 8th day of December, 1994 and we affirm the statements contained therein as true under penalties of perjury. INTELOGIC TRACE, INC. By: MIKE R. ELLIS Name: Mike R. Ellis Title: Vice President Name: PHILIP D. FREEMAN Title: Secretary 16 EX-4.5 3 REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.5 REGISTRATION RIGHTS AGREEMENT among INTELOGIC TRACE, INC. FIDELITY CAPITAL & INCOME FUND and SALVATORE CURIALE, Superintendent of Insurance of the State of New York, as Rehabilitator for Executive Life Of New York Dated as of December 8, 1994 TABLE OF CONTENTS Page ---- SECTION 1. Securities Subject to this Agreement .......................... 1 SECTION 2. Registration .................................................. 1 SECTION 3. Liquidated Damages ............................................ 3 SECTION 4. Registration Procedures ....................................... 4 SECTION 5. Registration Expenses ......................................... 7 SECTION 6. Indemnification; Contribution ................................. 8 (a) Indemnification by the Company ............................ 8 (b) Indemnification by Holders of Registrable Securities ...... 8 (c) Conduct of Indemnification Proceedings .................... 9 (d) Contribution .............................................. 10 SECTION 7. Rule 144A ..................................................... 11 SECTION 8. Miscellaneous ................................................. 11 (a) Remedies .................................................. 11 (b) Additional Signatories .................................... 11 (c) Amendments and Waivers .................................... 11 (d) Notices ................................................... 11 (e) Successors and Assigns .................................... 12 (f) Counterparts .............................................. 13 (g) Headings .................................................. 13 (h) Governing Law ............................................. 13 (i) Severability .............................................. 13 (j) Entire Agreement .......................................... 13 i This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered into as of December 8, 1994 among INTELOGIC TRACE, INC., a New York corporation (the "Company"), FIDELITY CAPITAL & INCOME FUND, a Massachusetts business trust ("Fidelity"), and SALVATORE CURIALE, Superintendent of Insurance of the State of New York, as rehabilitator for Executive Life of New York ("Executive Life"). Fidelity and Executive Life will own shares of the Common Stock, $.01 par value per share, of the Company (the "Common Shares") and shares of 10% Preferred Stock, $.01 par value, of the Company (the "Preferred Shares"). The parties hereby agree as follows: SECTION 1. SECURITIES SUBJECT TO THIS AGREEMENT. The term "Registrable Securities" means the Common Shares and Preferred Shares (including any shares from time to time received from the Company in exchange therefor or as a result of dividends, splits or similar actions with respect to Registrable Securities) to be received by each of Fidelity and Executive Life and by any other holder of such Common Shares and Preferred Shares who becomes a signatory to this Agreement as contemplated by Section 8(b) of this Agreement (the "Holders" or a "Holder," or the "Sellers" or a "Seller") as of the effectiveness (the "Effective Date") of the restructuring of the Company's 11.99% Subordinated Debentures that were due July 15, 1996 pursuant to a plan of reorganization under chapter 11 of title 11 of the United States Code, which has been confirmed by Final Order entered on November 28, 1994 of the United States Bankruptcy Court for the Western District of Texas, San Antonio Division, the court having jurisdiction over the Company's chapter 11 case. For convenience, unless the context otherwise indicates, the various agreements made herein with respect to Fidelity and Executive Life shall be deemed to be made on behalf of the respective Holders or Sellers, and references herein to "Signatories" shall include Fidelity, Executive Life and any other holder of Registrable Securities as of the Effective Date that becomes a party to this Agreement. SECTION 2. REGISTRATION. (a) The Company shall (i) cause to be filed with the Securities and Exchange Commission (the "Commission") on or before February 6, 1994, a shelf Registration Statement on Form S-1 (the "Shelf Registration Statement") covering the Registrable Securities in accordance with Rule 415 under the Securities Act of 1933, as amended (the "Act"), relating to the offer and sale of Registrable Securities by the Holders from time to time in accordance with the methods of distribution elected by the Sellers and set forth in the Shelf Registration Statement, (ii) use its best efforts to cause the Shelf Registration Statement to be declared effective by the Commission at the earliest possible time, but in no event later than March 8, 1994, and (iii) in connection with the foregoing, file (A) all pre-effective amendments to the Shelf Registration Statement as may be necessary in order to cause such Registration Statement to become effective, and (B) if applicable, a post-effective amendment to the Shelf Registration Statement pursuant to Rule 430A under the Act. (b) The Company shall use its best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus forming part thereof to be usable by the Holders for a period of three years or such shorter period that will terminate when all the Registrable Securities covered by the Shelf Registration Statement have been sold pursuant to such Registration Statement (in any such case, such period being called the "Shelf Registration Period"). (c) In the event that, following the Shelf Registration Period, the Company shall receive from any Holder or Holders of Registrable Securities comprising not less than 5% of the issued and outstanding Common Shares or Preferred Shares, a written request that the Company effect the registration of Registrable Securities, the Company will (i) promptly, and in any event within 15 days, give written notice thereof to each other Holder, (ii) cause to be filed with the Commission as promptly as possible (and in any event within 60 days after the Company receives such request) a Registration Statement on Form S-1 (or on an alternative form if such alternative form is then authorized for the sale to the public of the Registrable Securities and such form would permit registration of the Registrable Securities for sale by or on behalf of the Holders) (each a "Registration Statement", which term shall include the Shelf Registration Statement) covering the Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within 15 days after receipt of the written notice by the Company pursuant to clause (i), relating to the offer or sale of Registrable Securities by the Holders in accordance with the methods of distribution elected by the Sellers and set forth in the Registration Statement, (iii) use 2 its best efforts to cause such Registration Statement to be declared effective by the Commission at the earliest possible time, and (iv) in connection with the foregoing, file (A) all pre-effective amendments to such Registration Statement as may be necessary in order to cause such Registration Statement to become effective, and (B) if applicable, a post-effective amendment to such Registration Statement pursuant to Rule 430A under the Act. The Company shall not be required to effect more than two registrations pursuant to this Section 2(c). The Company may postpone for a reasonable period of time (not to exceed 30 days) the filing of any registration statement otherwise required to be prepared and filed by it pursuant to this Section 2(c) if, at the time it receives a request for registration, the Board of Directors of the Company shall determine in good faith that such offering will interfere materially with a pending or contemplated financing, merger, sale of assets, recapitalization or other similar corporate action of the Company and the Company shall have furnished to the Holders seeking such registration a certificate signed by the President of the Company to that effect, accompanied by a certified copy of the relevant board resolutions. (d) SELECTION OF COUNSEL. The Holders of the Registrable Securities to be included in each Registration Statement shall select one counsel reasonably acceptable to the Company to represent their interests in connection with such offering. The reasonable expenses of such counsel to the Holders shall be borne by the Company. (e) PROVISION BY HOLDERS OF CERTAIN INFORMATION IN CONNECTION WITH THE SHELF REGISTRATION STATEMENT. No Holder of Registrable Securities may include any of its Registrable Securities in any Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 10 business days after receipt of a request therefor, such information as the Company may reasonably request for use in connection with the Registration Statement or prospectus or preliminary prospectus included therein. No Holder of Registrable Securities shall be entitled to liquidated damages pursuant to Section 3 hereof unless and until such Holder shall have provided all such reasonably requested information. SECTION 3. LIQUIDATED DAMAGES. If (i) the Shelf Registration Statement is not filed with the Commission on or prior to the date specified for such filing in this Agreement, (ii) the Shelf Registration Statement has not been declared effective by the Commission on or prior to the date specified for 3 such effectiveness in this Agreement, or (iii) the Shelf Registration Statement is filed and declared effective but, during the period the Company is required to maintain its effectiveness, shall thereafter cease to be effective or fail to be usable for its intended purpose (each such event referred to in clauses (i) through (iii), a "Registration Default"), the Company agrees to pay liquidated damages to the Holders of Registrable Securities in an amount equal to $5,000 per week, apportioned ratably among such Holders based on the number of Common Shares held by each such Holder, for each week or portion thereof that the Registration Default continues. All accrued liquidated damages shall be paid to the Holders of Registrable Securities by the Company by wire transfer of, or check of, immediately available funds, on the first business day of each month following a Registration Default. Following the cure of all Registration Defaults relating to any particular Registrable Securities, the accrual of liquidated damages with respect to such Registrable Securities will cease. SECTION 4. REGISTRATION PROCEDURES. In connection with any Registration Statement to be filed pursuant to Section 2 of this Agreement, the Company will as expeditiously as possible: (a) prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement effective (i) in the case of the Shelf Registration Statement, for the Shelf Registration Period, and (ii) in the case of each other Registration Statement, for at least 180 days (or such shorter period as shall terminate when all Registrable Securities covered by such Registration Statement have been sold), and comply with the provisions of the Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act") applicable to it with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement during such period; (b) furnish to each Signatory, without charge, at least one signed copy of the Registration Statement and any post-effective amendment thereto, as soon as such documents become available to the Company, and such number of conformed copies thereof and such number of copies of the prospectus (including any preliminary prospectus) and any amendments or supplements thereto, and any documents incorporated by reference therein, as such Signatory may reasonably request as soon as such documents become available to the Company in order to facilitate the disposition of the Registrable Securities being sold by each 4 Seller (it being understood that the Company consents to the use of the prospectus and any amendment or supplement thereto by each Seller of such Registrable Securities in connection with the offering and sale of the Registrable Securities covered by the prospectus or any amendment or supplement thereto); (c) on or prior to the effective date of the Registration Statement, or thereafter if necessary, use its best efforts to register or qualify the Registrable Securities under such other securities or blue sky laws of such jurisdictions as each Signatory reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable each Seller to consummate the disposition in such jurisdictions of such Registrable Securities owned by such Seller; PROVIDED, HOWEVER, that the Company shall not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph, or (ii) subject itself to general taxation in any such jurisdiction; (d) use its best efforts to cause the Registrable Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary by virtue of the business and operations of the Company to enable the Sellers to consummate the disposition of such Registrable Securities; (e) notify each Signatory at any time while the Registration Statement is required to be effective under paragraph (a) above of the happening of any event which results in the Prospectus containing an untrue statement of a material fact or omitting to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and, as promptly as practicable, the Company will prepare a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (f) enter into customary agreements and make such representations and warranties to the Sellers of Registrable Securities as in form, substance and scope are customarily made by issuers to selling securityholders and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities; 5 (g) in connection with any underwritten offering, enter into an underwriting agreement with the underwriter of such offering in the form customary for such underwriter for similar offerings, including such representations and warranties by the Company, provisions regarding the delivery of opinions of counsel for the Company and accountants' letters, provisions regarding indemnification and contribution, and such other terms and conditions as are at the time customarily contained in such underwriter's underwriting agreement for similar offerings (and, at the request of any Holder of Registrable Securities that are to be distributed by such underwriter(s), any or all (as requested by such Holder) of the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriter(s) shall also be made to and for the benefit of such Holder); (h) make available for inspection during regular business hours by Fidelity and Executive Life and any attorney, accountant or other agent retained by them and their attorneys and agents (collectively, the "Inspectors"), all financial and other records, corporate documents, books and records, questionnaires, agreements, properties of the Company and other information (collectively, the "Records") as shall be reasonably requested to enable them to exercise "due diligence," and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with the Registration Statement; (i) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its security holders, as soon as reasonably practicable, earnings statements which need not be audited, covering a period of twelve months beginning after the effective date of the Registration Statement, which earnings statements shall satisfy the provisions of Section 11(a) of the Act; (j) notify each Signatory of any stop order or other suspension of effectiveness of the Registration Statement; (k) make every reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment; (l) use its best efforts to cause the Registrable Securities to be listed on the New York Stock Exchange or any other national securities exchange or automated quotation system 6 on which a listing for Common Shares or Preferred Shares is maintained; and (m) cooperate with the Sellers of Registrable Securities to facilitate the timely preparation and delivery of certificates representing securities to be sold under the Registration Statement (which certificates shall be in DTC- eligible form) and enable such securities to be in such denominations and registered in such names as such Sellers may request. The Company may require each Seller of Registrable Securities as to which any registration is being effected to furnish to the Company information regarding the distribution of such securities and such other information relating to the Seller and its ownership of Registrable Securities as the Company may from time to time reasonably request for inclusion in the Registration Statement Each Holder of Registrable Securities agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4(e) hereof, such holder will forthwith discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 4(e) hereof and, if so directed by the Company, such Holder will deliver to the Company (at the expense of the Company), all copies, other than permanent file copies then in such Holder's possession of the Prospectus covering such Registrable Securities current at the time of receipt of such notice. SECTION 5. REGISTRATION EXPENSES. All expenses incident to the Company's performance of or compliance with Section 2 of this Agreement including, without limitation, all registration and filing fees, and expenses of compliance with state securities or blue sky laws (including fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities), messenger and delivery expenses, internal expenses (including, without limitation, all salaries and expenses of the Company's officers and employees performing legal or accounting duties), printing costs, fees and expenses of counsel for the Company and its independent certified public accountants (including the expenses of any special audit required by or incident to such performance), liability insurance for claims under the Act and the Exchange Act (it being understood that the Company has no 7 obligation to obtain such insurance), fees and expenses of counsel for the Sellers under Section 2(d) above and the fees and expenses of any special experts retained by the Company in connection with such registration (all such expenses being herein called "Registration Expenses") shall be borne by the Company; PROVIDED, HOWEVER, that in no event shall Registration Expenses include any discounts, commissions or underwriting fees attributable to the sale of the Registrable Securities. SECTION 6. INDEMNIFICATION; CONTRIBUTION. (a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify, to the full extent permitted by law, each participating Holder of Registrable Securities, its officers, directors, partners, employees and agents and each person or entity that controls such Holder (within the meaning of the Act), and any investment advisor thereof or agent therefor (collectively, the "Indemnified Holders") against all losses, claims, damages, liabilities and expenses (including reasonable out-of-pocket costs of investigation and reasonable legal expenses) arising out of or based upon any untrue or alleged untrue statement of a material fact contained in any Registration Statement or prospectus (or any amendment or supplement thereto) or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a prospectus, in light of the circumstances under which they are made) not misleading; PROVIDED, HOWEVER, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage, liability or expense arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission made in the Registration Statement or prospectus, or such amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by any of the Holders specifically for use in the preparation thereof. This indemnity is in addition to any liability which the Company may otherwise have. The Company will also indemnify any selling brokers, dealer managers and similar securities industry professionals participating in the distribution and their officers and directors and each person who controls such persons or entities (within the meaning of the Act) to the same extent as provided above with respect to the indemnification of the Holders of Registrable Securities. (b) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In connection with any Registration Statement in which a Holder of Registrable Securities is participating, each 8 such Holder will furnish to the Company, in writing, such information and affidavits with respect to such Holder as the Company reasonably requests for use in connection with such Registration Statement or any prospectus included therein and agrees to indemnify, to the extent permitted by law, the Company, its directors, officers, employees and agents and each person or entity that controls the Company (within the meaning of the Act), and any investment advisor thereof or agent therefor against any losses, claims, damages, liabilities and expenses (including reasonable out-of-pocket costs of investigation and reasonable legal expenses) arising out of or based upon any untrue or alleged untrue statement of a material fact contained in the Registration Statement or prospectus or any omission or alleged omission to state therein a material fact required to be stated or necessary to make the statements therein (in the case of a prospectus, in the light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in or should have been contained in any information or affidavit with respect to such Holder so furnished in writing by such Holder expressly for inclusion in such Registration Statement; PROVIDED, HOWEVER, that the obligation of such Holder under this Section 6 shall in no event exceed the proceeds received by such Holder upon the sale of the Registrable Securities in the offering covered by such Registration Statement. (c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person or entity entitled to indemnification hereunder agrees to give prompt written notice to the indemnifying party after the receipt by such person or entity of any written notice of the commencement of any action, suit or proceeding against such person or entity or investigation thereof for which such person or entity will claim indemnification or contribution pursuant to this Agreement and, unless in the reasonable judgment of such indemnified party a conflict of interest exists between such indemnified party and the indemnifying party with respect to such claim, permit the indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to such indemnified party. If the indemnifying party is not entitled to, or elects not to, assume the defense of a claim, it will not be obligated to pay the fees and expenses of more than one lead counsel with respect to such claim (plus local counsel fees, if required), unless in the reasonable judgment of counsel to such indemnified party a conflict of interest exists between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such 9 additional counsel or counsels. The indemnifying party will not be subject to any liability for any settlement made without its consent, which consent shall not be unreasonably withheld. (d) CONTRIBUTION. If the indemnification provided for in this Section 6 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein by reason other than that set forth in the proviso at the end of the first sentence of Section 6(a) hereof, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions or inactions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include, subject to the limitations set forth in Section 6(c), any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding. The parties hereto agree that it would not be just and equitable if contribution pursuant to this paragraph were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. If indemnification is available under this Section 6, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Sections 6(a) and (b) without regard to the relative fault of said indemnifying party or indemnified party or any other equitable consideration provided for in this Section 6. 10 SECTION 7. RULE 144A. The Company hereby agrees with each Signatory, for so long as any Registrable Securities remain outstanding, to make available to any Signatory or beneficial owner of Registrable Securities in connection with any sale thereof and any prospective purchaser of such Registrable Securities from such Signatory or beneficial owner, the information required by Rule 144(d)(4) under the Act in order to permit resales of such Registrable Securities pursuant to Rule 144A. SECTION 8. MISCELLANEOUS. (a) REMEDIES. Each party hereto, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. Each party agrees that monetary damages may not be adequate compensation for any loss incurred by reason of a breach of the provisions of this Agreement and hereby agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) ADDITIONAL SIGNATORIES. If the Company determines that any persons, other than the original signatories hereto, who are to receive Common Shares or Preferred Shares as of the Effective Date may be deemed to be underwriters within the meaning of the Act with respect to such securities, upon the written consent of Fidelity and Executive Life such persons may become additional Signatories to the Agreement and their Shares shall be deemed to be Registrable Securities. (c) AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be amended, modified or supplemented, and waivers and consents to or departures from the provisions hereof may not be given unless the Company has obtained the written consent of Holders of a majority of the Registrable Securities. (d) NOTICES. All notices and other communications provided for or permitted hereunder shall be made by telecopy (followed by registered first-class mail or overnight courier delivery of a hard-copy), by overnight courier or by hand- delivery: (i) if to the Company, at: Turtle Creek Tower I P.O. Box 400044 11 San Antonio, Texas 78229-8415 Attention: Philip Freeman, Esq. Telecopy: (210) 593-2201 with a copy to: Cox & Smith Incorporated 1120 E. Pecan Street Suite 1800 San Antonio, Texas 78205 Attention: James B. Smith, Jr., Esq. Telecopy: (210) 226-8395 (ii) if to Fidelity, at: 82 Devonshire Street Boston, Massachusetts 02109 Attention: Judy K. Mencher, Esq. Telecopy: (617) 476-7774 with a copy to: Weil, Gotshal & Manges 767 Fifth Avenue New York, New York 10153 Attention: Bruce R. Zirinsky, Esq. Telecopy: (212) 310-8007; and (iii) if to Executive Life, at: 123 William Street New York, New York 10038 Attention: Kevin Foley Telecopy: (e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, including without limitation and without the need for an express assignment, subsequent Holders of the Registrable Securities; PROVIDED, HOWEVER, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign acquired Registrable Securities from such Holder. 12 (f) COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (g) HEADINGS. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (h) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. (i) SEVERABILITY. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby. (j) ENTIRE AGREEMENT. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 13 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. INTELOGIC TRACE, INC. By: PHILIP D. FREEMAN Name: Philip D. Freeman Title: Secretary FIDELITY CAPITAL & INCOME FUND By: JOHN H. COSTELLO Name: John H. Costello Title: Assistant Treasurer SALVATORE CURIALE, Superintendent of Insurance of the State of New York, as Rehabilitator for Executive Life of New York By: RICHARD J. LINDQUIST Name: Richard J. Lindquist Title: Managing Director, First Boston Investment Management Corporation EX-10.32 4 MASTER REPAIR AGREEMENT EXHIBIT 10.32 MASTER REPAIR SERVICES AND SPARE PARTS SUPPLY AGREEMENT This Master Repair Services and Spare Parts Supply Agreement (hereinafter the "Agreement") is made as of the last date written below by and between INTELOGIC TRACE, INC. ("I T"), a New York corporation, having its principal place of business located at Turtle Creek Tower I, P. O. Box 400044, San Antonio, Texas 78229 and PC SERVICE SOURCE, INC. ("PCSS"), a Delaware corporation, having its principal place of business located at 1221 Champion Circle, Suite 105, Carrollton, Texas 75006. WITNESSETH: In consideration of the mutual promises hereinafter set forth, I T and PCSS do hereby agree as follows: 1. DEFINITIONS. The following terms shall have the meanings specified below: A. ACQUIRED ASSETS. "Acquired Assets" shall mean all Acquired Inventory and Equipment owned by I T. B. ACQUIRED INVENTORY. "Acquired Inventory" shall mean the inventory of spare and repair parts listed in the attached Schedule A. C. BANKRUPTCY COURT. "Bankruptcy Court" shall mean the United States Bankruptcy Court for the Western District of Texas, San Antonio Division. D. BEST EFFORTS. "Best Efforts" shall mean that either Party shall use all necessary resources and undertake all required efforts in good faith to accomplish a task specified under this Agreement in the timeframes specified. E. CASH. "Cash" shall mean cash and cash equivalents (including certified or cashiers check). F. CLOSING. The "Closing" shall mean the satisfaction or waiver of all conditions to the obligations of the Parties to consummate the transactions contemplated hereby, other than conditions with respect to actions the respective parties will take at the Closing itself. G. CONFIRMATION DATE. "Confirmation Date" shall mean the date designated by the Bankruptcy Court, upon which the reorganization plan submitted by I T to the Bankruptcy Court under bankruptcy case number 94-52172-C-11, has been approved by the Court and such order of approval has become final and unappealable. 1 H. ESCROW AMOUNT. "Escrow Amount" shall have the meaning specified in paragraph 3.F.2). below. I. EQUIPMENT. "Equipment" shall mean the items of machinery, equipment and other items specified in Schedule B to this Agreement. J. FULFILLMENT RATE. "Fulfillment Rate" shall have the meaning specified in paragraph 4.E.1).a. below. K. I T CUSTOMERS. "I T Customers" shall mean the end-user, reseller and manufacturer customers of I T. L. ORDER. "Order" shall have the meaning specified in paragraph 4.A. below. M. ORDINARY COURSE OF BUSINESS. "Ordinary Course of Business" shall mean the ongoing transaction of business consistent with the customs and practices of the Parties. N. THE PARTIES. The "Parties" to this Agreement shall consist of "PCSS" and "I T", which respectively, shall have the meanings specified above. O. PARTS AND REPAIR OPERATIONS. "Parts and Repair Operations" shall mean the I T spare parts repair and warehouse facilities and other facilities and locations utilized by I T at time of execution of this Agreement as specified on the attached Schedule C, including the Acquired Inventory, Equipment, and personnel employed by I T in the provision of spare parts and repair services required by I T. P. PASS-THROUGH WARRANTY. "Pass-Through Warranty" shall mean the warranty provided by the original manufacturer and/or vendor of the Spare Parts and/or Repair Services provided under this Agreement, which are directly transferable to I T as the purchaser of any such Spare Parts and/or Repair Services (consisting of repair and/or replacement of any such Spare Parts, and applicable penalty credits, if any). Q. PERFORMANCE CREDIT. "Performance Credit" shall have the meaning specified in paragraph 4.E. below. R. PURCHASE CREDITS. "Purchase Credits" shall mean the sums made available to I T to be applied against amounts payable to PCSS under this Agreement, as provided for in paragraph 3.F. below. 2 S. I T PURCHASE CREDIT RIGHT. "I T Purchase Credit Right" (hereinafter "ITPCR") shall have the meaning specified in paragraph 3.F.3). below. T. PURCHASE PRICE. "Purchase Price" shall have the meaning specified in paragraph 3.F. below. U. REPAIR SERVICES. "Repair Services" shall mean the performance of subassembly or unit repair or replacement services by PCSS or its repair vendors for equipment units, components or parts on items of Spare Parts received from or on behalf of I T, required in order to return such defective Spare Parts to good working order. V. SPARE PARTS. "Spare Parts" shall mean fully operational: 1) personal computer microcomputer and peripheral equipment spare parts; 2) spare parts acquired by PCSS from I T under this Agreement designated as "Acquired Inventory"); and 3) other spare parts requested by I T under this Agreement for which an Order is accepted by PCSS; regardless of where any such spare parts may reside. 2. SCOPE OF AGREEMENT. A. PURCHASE AND SALE OF ASSETS. Subject to the terms and conditions of this Agreement, PCSS agrees to purchase from I T, and I T agrees to sell to PCSS, all of the Acquired Assets at the Closing for the consideration specified in Section 3.F. below. B. OBLIGATION TO PROVIDE SPARE PARTS AND REPAIR SERVICES. Subject to the terms and conditions of this Agreement, PCSS agrees to assume the obligation to provide substantially all of the Spare Parts and Repair Services ordered by I T in the course of providing remedial and preventive maintenance services to I T Customers. PCSS will not assume or have any responsibility, however, with respect to any other obligation or liability of I T not specified in this Agreement. C. OBLIGATION TO ORDER SPARE PARTS AND REPAIR SERVICES. On and subject to the terms and conditions of this Agreement, I T agrees to order, purchase and accept from PCSS, substantially all of its Spare Parts and Repair Services required by I T in the course of providing remedial and preventive maintenance services to I T Customers. 3 3. PURCHASE AND SALE OF ASSETS. A. PCSS agrees to purchase from I T and I T agrees to sell, transfer, convey and deliver to PCSS, all right, title, and interest in and to all the Acquired Assets, including the Acquired Inventory, Equipment and I T's Parts and Repair Operations, for the consideration specified in paragraph 3.F. below. I T hereby represents that it has good and marketable title to the Acquired Assets, free and clear of all Security Interests, except for those which will be released at Closing (e.g. Foothill) and/or subject to trade liens incurred in the Ordinary Course of Business that are not yet due and payable (such as Spare Parts maintained in inventory at repair vendors). The Closing of the transactions contemplated by this Agreement shall take place at the office of I T located in San Antonio, Texas, commencing at 9:00 AM, on November __, 1994 (the "Closing Date"). B. Upon Closing, PCSS shall make offers of employment in good faith, to all I T personnel employed by I T in the provision of spare parts and repair services required by I T, at an equivalent and substantially similar rate of pay (a listing of all such I T personnel is attached hereto as Schedule D). C. Upon Closing, PCSS shall assume and at all times satisfactorily perform the function of I T's Parts and Repair Operations. This shall consist, initially, of funding I T's continued operation of such function, at PCSS' sole expense. PCSS shall designate and communicate in writing to I T which of the I T personnel, facilities and utilities it chooses to maintain. PCSS shall be responsible for the direct expenses of maintaining the function of I T's Parts and Repair Operations during the period of time PCSS initiates a readiness to provide Spare Parts and Repair Services. PCSS shall have a period of up to ninety (90) days (the "Service Ramp-Up") in order to meet the full performance requirements specified in Section 4 below, in accordance with the provisions of this Agreement. D. PCSS shall be responsible for all movement, shipping and stocking costs associated with the transfer of Acquired Inventory and Equipment from I T's facilities to locations specified by PCSS. E. PCSS shall meet the scheduling needs imposed by the processing of lease rejections, for use by PCSS of facilities leased by I T from third parties, under the requirements of its plan of reorganization with the Bankruptcy Court. PCSS may continue use of I T 4 facilities, subject to mutually agreed to terms, conditions and prices negotiated by and between PCSS and the landlord(s) of any such facilities, at PCSS' sole expense. I T will cooperate with PCSS in good faith to secure extensions to time limits on acceptance or rejection of leases, imposed by the Bankruptcy Court, in the event PCSS requests any such extensions. F. PCSS agrees to pay at the Closing, Five Million, One Hundred Twenty-Five Thousand Dollars ($5,125,000) (the "Purchase Price") by delivery of: 1) the payment in cash to Fidelity Capital and Income Fund ("Fidelity") on behalf of I T One Million, Four Hundred Twenty-Five Thousand Dollars ($1,425,000) immediately upon Closing, and 2) the payment in cash to Fidelity on behalf of I T One Million, Two Hundred Thousand Dollars ($1,200,000) upon the Confirmation Date of the reorganization plan submitted by I T to the Bankruptcy Court under bankruptcy case number 94-52172-C-11, provided that I T is a publicly traded corporation listed on a national stock exchange at time of exiting from bankruptcy protection. In the event I T is not a publicly traded corporation listed on a national exchange at time of confirmation, PCSS will make payment in cash of One Million, Two Hundred Thousand Dollars ($1,200,000) (the "Escrow Amount") to the Escrow Agent pursuant to the Escrow Agreement attached hereto as Exhibit 1, under which such sum is payable to Fidelity on behalf of I T in accordance with the following: the payment in cash of One Hundred Thousand Dollars ($100,000.00) per month, until such time as the full amount has been paid to Fidelity on behalf of I T, provided that I T maintains an average minimum order placement value of One Hundred Thousand Dollars ($100,000), net of any returns but including any fees due PCSS by I T, calculated on a cumulative rolling quarterly basis. In the event I T fails to maintain the minimum cumulative average order placement value mentioned above or has outstanding balances due in excess of the credit terms provided herein, PCSS may suspend payments of the Escrow Amount until I T achieves the minimum cumulative average order placement value or brings its account current, in which case PCSS shall 5 immediately pay Fidelity on behalf of I T any payments withheld, in addition to any additional payments due I T; and, 3) the establishment of a Two Million, Five Hundred Thousand Dollar ($2,500,000) I T Purchase Credit Right as a contingent liability on the financial books of PCSS (the "ITPCR"), to be offset by Purchase Credits generated by certain purchases of Spare Parts and/or Repair Services from PCSS (except in the event of breach by PCSS of the "Delivery Requirements" specified below, or termination of this Agreement without cause by PCSS as provided for in paragraph 5.A.3), in which case One Million Two Hundred Fifty Thousand Dollars ($1,250,000) shall be immediately payable and paid in cash to Fidelity on behalf of I T in accordance with paragraph 5.A.2).c. below) pursuant to the following: a. Purchase Credits shall accrue on a monthly basis for each month during the term of this Agreement, in accordance with the following: (1) Purchase Credits shall be calculated based upon the aggregate gross total value ("Gross Total Value") of all amounts payable to PCSS by I T under the provisions of this Agreement (net of any returns, but including any fees to be paid PCSS under this Agreement), during each calendar month during the term of this Agreement. (2) Purchase Credits shall accrue at the rate of five percent (5%) of the Gross Total Value for any calendar month, for amounts due PCSS when the Total Gross Value is less than Seven Hundred and Fifty Thousand Dollars ($750,000). (3) Purchase Credits shall accrue at the rate of six percent (6%) of the Gross Total Value for any calendar month, for amounts due PCSS hereunder, when the Total Gross Value is equal to or greater than Seven Hundred and Fifty Thousand Dollars ($750,000). (4) Purchase Credits shall not accrue during any month in which the Gross Total Value payable to PCSS is less than One Hundred Thousand Dollars ($100,000). 6 b. Purchase Credits may be applied by I T effective on or after the first day of the following month in which such Purchase Credits were earned, and may be applied by I T in the form of a short payment of amounts due and payable to PCSS by I T. c. In the event the PCSS Note has not been fully utilized by Purchase Credits generated hereunder prior to expiration of the initial term of this Agreement, Purchase Credits shall continue to accrue, and I T may continue to use any such Purchase Credits, for so long as the Agreement is not terminated as provided for in paragraph 5.A.1). below. G. PCSS shall have a period of up to sixty (60) days from date of Closing in which to perform a detailed inventory and inspection of the Acquired Inventory. I T hereby represents that the Acquired Inventory shall be as described in the attached Schedule A. In the event the inventory results in a determination that a material shortage of quantities of Acquired Inventory exists, as compared to the listing specified in Schedule A, I T will replace any such material shortages or adjust the purchase price for such inventory on a proportional basis. This replacement of material shortages and/or adjustment of purchase price shall be the exclusive remedy to PCSS in the event of material shortages in the Acquired Inventory. Any reduction of the purchase price provided herein shall reduce the ITPCR portions of the purchase price in proportion to the original amount. H. In the event I T is sold or acquired by a third party (by merger, stock sale, or sale of a majority of its business or assets) during the term of this Agreement and any such transaction results in the termination of this Agreement prior to the expiration of the term hereof because the Agreement is not assumed by a purchaser which would do a substantially similar type and amount of business with PCSS as would I T, or is left as a liability of a corporation or other entity which no longer conducts a business similar in type and amount to I T, I T shall agree to the following: 1) If so terminated during the initial twelve (12) month period from the Confirmation Date by the Bankruptcy Court, I T will pay PCSS Seven Hundred and Fifty Thousand Dollars ($750,000). 7 If the Escrow is being paid monthly by PCSS to I T hereunder, I T will forfeit the unpaid balance of the Escrow Amount specified above, subject to a minimum amount of Seven Hundred and Fifty Thousand Dollars ($750,000), such that if there is an insufficient amount remaining in escrow to cover the $750,000 amount, I T would arrange and make provision for such payment to be made by I T or the buyer to PCSS as a condition to the sale, if such sale were to result in the termination of this Agreement. 2) If terminated subsequent to the initial twelve (12) month period from the Confirmation Date, the amount due PCSS would decline from the $750,000 amount specified in paragraph 3.H.1) above, at the rate of Fifteen Thousand, Six Hundred Twenty-Five Dollars ($15,625) for each month beyond month twelve (12), beginning on the first day of any such month, during the remaining term of the Agreement, until the amount is reduced to Zero Dollars ($0). 3) The amounts specified in 3.H.1). and 3.H.2). above shall be considered liquidated damages in lieu of cover or any other damages which PCSS might allege as a result of such termination, and shall be considered the sole and exclusive remedy available to PCSS with regard to the termination of this Agreement as provided for hereinabove. 4. SUPPLY OF SPARE PARTS AND REPAIR SERVICES A. ORDERING OF SPARE PARTS AND REPAIR SERVICES. 1) I T may from time to time request that PCSS provide Spare Parts and/or Repair Services by notifying PCSS in writing, electronically and/or verbally (verified in writing by I T within one (1) business day), specifying the Spare Part(s) and/or Repair Services to be provided (an "Order"). 2) PCSS shall provide any such Spare Parts and/or Repair Services to I T that I T requests which are required within the Ordinary Course of Business by I T, upon PCSS's receipt of an Order. Each Order shall constitute a contract exclusively consisting of the terms of this Agreement, any applicable Schedule(s) and the Spare Parts and/or Repair Services set forth in the Order. The Parties agree that if there is any inconsistency between the terms of this Agreement and any Order or acknowledgment form submitted by I T or PCSS, then the terms of this Agreement shall govern and control and the inconsistent term found in the Order or acknowledgment form shall be of no force and effect. 8 3) "Normal Parts" shall mean those Spare Parts and/or Repair Services normally provided by PCSS in the Ordinary Course of Business, whether such Spare Parts are kept in stock or are ordered on a case-by-case basis. "Sourced Parts" shall mean those Spare Parts and/or Repair Services that are not normally provided by PCSS in the Ordinary Course of Business, but which are within the scope of the types of Spare Parts and/or Repair Services normally provided by PCSS (e.g., a Spare Part such as a hard drive to be used on a personal computer, of a type or brand not regularly purchased by PCSS). "Special Order Parts" shall mean those Spare Parts and/or Repair Services not normally provided by PCSS in the Ordinary Course of Business, that are not within the scope of types of Spare Parts and/or Repair Services normally provided by PCSS (e.g., a Spare Part or item such as a peripheral device that attaches to a personal computer). "Acquired Parts" shall mean those Spare Parts derived from the Acquired Inventory. 4) With respect to Normal Parts and Acquired Parts, PCSS shall accept any such Order(s) and fulfill them in accordance with the Performance Requirements of this Agreement. With respect to Sourced Parts, PCSS shall accept any such Order(s) and use its best efforts to respond to any such request(s) and fulfill them in accordance with the Performance Requirements of this Agreement. B. SPECIAL BID REQUESTS. 1) With respect to Special Order Parts, PCSS shall immediately use its best efforts to respond to any such request with a bid price which will be firm for a minimum period of ninety (90) days. The definition of normal work day ("Normal Work Day") for purposes of securing Special Order Parts shall be the greater of the hours of 8:00 AM to 5:00 PM, Monday through Friday, excluding regularly observed national holidays, or the actual hours of operation in the event the applicable vendor has hours of operation beyond the Normal Work Day. 2) PCSS will have a period of up to two (2) Normal Work Days to respond to any such request. In the event PCSS chooses not to bid on any such request made by I T, I T shall be free to pursue the purchase of such Spare Part(s) and/or Repair Service(s) elsewhere, with no further obligation or liability to PCSS for any such item(s). Failure by PCSS to 9 respond in writing within the above mentioned two (2) Normal Work Day response time shall be considered a formal "No Bid" response by PCSS. 3) In the event PCSS responds with a bid price for any such item(s) and I T provides PCSS with notification that the bid price is noncompetitive with the given bidding opportunity, PCSS will have the opportunity to revise its bid accordingly. 4) PCSS shall have up to twenty-four (24) hours from time of receipt of notification that a bid price is nonresponsive, in which to revise its price. In the event PCSS chooses not to revise its bid price in a manner deemed by I T to be competitive with the given bidding opportunity, or PCSS fails to respond in writing to any such request within twenty-four (24) hours of receipt of any such request, the bid response shall be considered non- responsive, and I T shall be free to pursue the purchase of such Spare Part(s) and/or Repair Service(s) with no further obligation or liability to PCSS for any such item(s). 5) In the event of a No-Bid response as provided for above, any dollars spent by I T with third parties for purchase of spare parts and/or repair services No-Bid by PCSS for items that are within the scope of equipment normally purchased by PCSS (e.g. personal computer type equipment, including peripheral devices), shall accrue for the purposes of determining the Purchase Credit(s) I T is entitled to under this Agreement, as if any such spare parts were purchased by I T from PCSS hereunder (provided that in the case of No-Bids by PCSS due to a determination by I T that the PCSS bid price was not competitive, no such credits will accrue in the event the PCSS bid price was within a price range consistent with the percentage uplift specified in the Pricing Schedule specified in Section 4.I.3). below). I T will notify PCSS of any such purchases and shall be entitled to utilize any such credits beginning on the first day of the week following any such purchases. Purchases made by I T subsequent to a No-Bid by PCSS that are not within the scope of equipment purchased by PCSS shall not accrue for purposes of determining Purchase Credit(s) I T is entitled to under this Agreement. 10 6) A request for bid shall not constitute placement of an Order by I T hereunder. I T will communicate acceptance of special order bids by placement of an Order with PCSS. PCSS shall not be responsible for fulfilling special bid items, and I T will be under no obligation to purchase any such item(s) from PCSS, unless and until I T places an Order for any such items. I T will promptly advise PCSS of any contracts entered into by I T based on bids submitted by PCSS. C. AUTHORIZED SPARE PARTS AND REPAIR SERVICES PROVIDER. Provided that PCSS is providing Spare Parts and/or performing Repair Services in accordance with the provisions of this Agreement and the applicable Order(s) and extending the below mentioned payment terms to I T, I T shall not utilize any party other than PCSS for the provision of Spare Parts and Repair Services specified under this Agreement. Notwithstanding the above, I T shall be free to pursue the procurement of any Spare Parts and/or Repair Services with third parties outside the scope of this Agreement, for items for which PCSS has responded with a No Bid, as provided for in paragraph 4.B. above. D. SPECIFIED REPAIR SERVICES. PCSS shall provide labor, parts and materials and shall perform all Repair Services in a first class and workmanlike fashion, consistent with commonly accepted industry standards for repair of similar component spare parts, necessary to repair and upgrade the Spare Parts to the current minimum revision level, so that any repaired Spare Parts will conform to the OEM's then current published operating specifications for form, fit, function and finish; and consistent with the following: 1) the repair specifications specified in the attached Exhibit 2 ("Repair Specifications"), and 2) the performance requirements specified below; E. PERFORMANCE REQUIREMENTS. 1) PARTS DELIVERY. TIME IS OF THE ESSENCE WITH RESPECT TO THE DELIVERY OF SPARE PARTS ORDERED BY I T. PCSS shall use its best efforts to deliver all Spare Parts within the timeframe(s) requested by I T. Without limiting the foregoing, the following provisions shall apply to the delivery of Spare Parts: 11 a. Spare Parts ordered by I T from PCSS under this Agreement shall arrive at the specified site within the requested arrival time, for ninety percent (90%) or more of all such Spare Parts shipped to I T (the "Fulfillment Rate"), as determined by I T. Orders shall be designated for arrival by I T as a Priority 1 Order or a Priority 2 Order. A Priority 1 Order shall be set for next business day arrival and a Priority 2 Order shall be designated for arrival no later than 4 business days from the order day. Failure to meet the Fulfillment Rate will entitle I T to the Performance Credits and other remedies specified in this Agreement, which shall be the exclusive remedies available to I T for any such failure. The Fulfillment Rate shall be measured on a weekly basis (a "Week" being measured as seven (7) consecutive days commencing on each Monday), for all Spare Parts Ordered by I T, shipped by PCSS, in accordance with the following: i) "Order Cut-Off Time" shall mean the point in time during a normal business day by which I T shall have placed an Order with PCSS, subsequent to which time the Order shall be considered to have been placed during the following business day, for purposes of determining when the Order shall be shipped. The normal Order Cut- Off Time for Normal Parts shall be 7:00 PM, Central Standard Time. ii) "Orders Received" shall mean the number of Orders placed with PCSS during a normal business day by I T prior to the Order Cut-Off time, for purposes of determining how many Orders were placed by I T with PCSS on a given day. iii) "Order Shipment Cut-Off Time" shall mean the point in time during a normal business day by which PCSS shall have to physically deliver the Order to a shipper, in order for the shipper to accept the Order for delivery on that day. iv) "Order Shipment Requirement" shall mean the amount of time allowed for PCSS to delivery a received Order to a shipper, in order to meet the Fulfillment Rate. v) "Fulfillment Rate" shall mean the number of Orders shipped within the Order Shipment Requirement, divided by the number of Orders Received during any such 12 Week, even if delivery for some of those Orders is scheduled to occur during the following Week. b. In the event the Fulfillment Rate for any week is less than eighty-eight percent (88%), but not less than eighty-six percent (86%) of all such Spare Parts shipped to I T, I T will earn a performance credit (the "Performance Credit") equal to one and one half percent (1 1/2%) of the Gross Total Value of all amounts payable to PCSS by I T under this Agreement, accrued during any such one (1) week period, net of returns, usable by I T beginning on the first day of the following week. c. In the event the Fulfillment Rate for any week is less than eighty-six percent (86%), but not less than eighty-four percent (84%) of all such Spare Parts shipped to I T, I T will earn a Performance Credit equal to three and one half percent (3 1/2%) of the Gross Total Value of all amounts payable to PCSS by I T under this Agreement, accrued during any such one (1) week period, net of returns, usable by I T beginning on the first day of the following week. d. In the event the Fulfillment Rate for any week is less than eighty-four percent (84%), but not less than eighty-one percent (81%) of all such Spare Parts shipped to I T, I T will earn a Performance Credit equal to seven and one-half percent (7.5%) of the Gross Total Value of all amounts payable to PCSS by I T under this Agreement, accrued during any such one (1) week period, net of returns, usable by I T beginning on the first day of the following week. e. In the event the Fulfillment Rate for any week is less than eighty-one percent (81%) of all such Spare Parts shipped to I T, I T will earn a Performance Credit equal to fifteen percent (15%) of the Gross Total Value of all amounts payable to PCSS by I T under this Agreement, accrued during any such one (1) week period, net of returns, usable by I T beginning on the first day of the following week. f. In the event the Fulfillment Rate for any week exceeds ninety-two percent (92%) of all such Spare Parts shipped to I T, PCSS will earn a Performance Credit equal to one half of one 13 percent (1/2%) of the aggregate Gross Total Value of all amounts payable to PCSS by I T under this Agreement, accrued during any such one (1) week period, net of returns, usable by PCSS beginning on the first day of the following week. This credit will accrue solely for the purposes of offsetting the Performance Credits earned by I T, as specified above, and shall be usable by PCSS during the term of this Agreement. g. During the Service Ramp-Up period, the 84% to 86% Performance Credit category and the 86% to 88% Performance Credit category shall go into effect in a phased manner in accordance with the following: (1) During the initial thirty (30) days of the Service Ramp-Up period, the total Performance Credits earned by I T for the categories specified in paragraph 4.E.g. above, the 81% to 84% Performance Credit category and the Less Than 81% Performance Credit category shall be limited to twenty-five percent (25%) of any such amounts. (2) During the thirty-first (31st) through sixtieth (60th) day following the start of the Service Ramp-Up period, the total Performance Credits earned by I T for the categories specified in paragraph 4.E.g. above shall be limited to fifty percent (50%) of any such amounts. (3) During the sixty-first (61st) through ninetieth (90th) day following the start of the Service Ramp-Up period, the total Performance Credits earned by I T for the categories specified in paragraph 4.E.g. above shall be limited to seventy-five percent (75%) of any such amounts. (4) All other Performance Credit categories shall remain unchanged during the Service Ramp-Up period. h. At the end of the Service Ramp-Up period, and on any anniversary of the Closing Date during the term of this Agreement, I T and PCSS will review the Fulfillment Rates specified hereunder, and will, subject to written mutual 14 agreement of the parties, adjust such Fulfillment Rate(s) accordingly; provided, however, that I T shall have no obligation to decrease the Fulfillment Rate requirements set forth herein. i. Since Time is of the Essence, in addition to the foregoing provisions, and notwith- standing any implication to the contrary contained in any such provisions, I T, at its sole discretion, may terminate this Agreement (in which case the provisions of paragraph 5.A.2). below shall apply) if and only if the failure described in (1) and (2) below occur and are followed promptly thereafter by written notice of such failure by I T to PCSS and following that notice such failure by PCSS reoccurs within 6 months of the failure described in the notice: (1) in the event the Fulfillment Rate of PCSS during any three (3) out of four (4) consecutive weeks, measured on a weekly basis, fails to exceed eighty-four percent (84%), or (2) in the event the Fulfillment Rate of PCSS during any week fails to exceed eighty-one percent (81%). (3) Notwithstanding the above, during the initial thirty (30) days of the Service Ramp-Up period, I T shall not terminate this Agreement for failure by PCSS to meet the Performance Requirements specified in this Agreement. I T may, however, elect to terminate this Agreement subsequent to the initial thirty (30) day period in accordance with the provisions specified above. 2) PARTS AGEING. In the event any Spare Parts ordered by I T are not shipped within three (3) days from the date specified by I T on the applicable Order, PCSS shall issue an additional Performance Credit in the amount of One Hundred Dollars ($100) for each such Spare Part, for each day beyond three (3) days of any such required shipment date that PCSS fails to ship any such Spare Part. a. During the initial ninety (90) day Service Ramp-Up period, the above Performance Credit shall be waived for up to five percent (5%) of the aggregate number of Spare Parts falling outside the Parts Ageing three (3) day Performance Credit window. 15 b. Since Time is of the Essence, in addition to the foregoing provisions, and notwith- standing any implication to the contrary contained in any such provisions, I T, at its sole discretion, may terminate this Agreement (in which case the provisions of paragraph 5.A.2). below shall apply) in the event more than five percent (5%) of Orders Received for any Week age more than ten (10) days beyond the Order Shipment Requirement if and only if such failure is followed promptly thereafter by written notice of such failure by I T to PCSS and following that notice such failure by PCSS reoccurs within 6 months of the failure described in the notice: 3) OUT-OF-BOX-FAILURES. Spare Parts shall be shipped by PCSS to the I T designated arrival site so as to arrive in good working order ninety-seven percent (97%) or more of the time for all such Spare Parts shipped to I T during any calendar month during the term of this Agreement. Spare Parts that are not in good working order at time of arrival shall be considered an "Out-Of-Box-Failure" ("OOBF"), and shall entitle I T to a Performance Credit of Fifty Dollars ($50.00) for every verified OOBF above three percent (3%) of all such shipped Spare Parts (except that with respect to Acquired Parts obtained from I T, the Performance Credit shall be waived for any such Acquired Parts that have no pass-through warranty from the applicable Spare Parts vendor, and the affected Spare parts shall not be counted in determining the OOBF calculation, until such time as the affected Spare Part shall have undergone Repair Services by PCSS, at which time the above Fifty Dollar ($50.00) Performance Credit shall apply and any such Spare Part(s) will be counted in determining the OOBF calculation), in addition to replacement of the affected Spare Part at no additional charge to I T for each such OOBF occurrence. a. Should the OOBF rate for any week exceed five percent (5%) then I T may elect to terminate this Agreement (in which case the provisions of paragraph 5.A.2). shall apply). In any such event I T shall provide PCSS with a written notice of its intent to terminate this Agreement due to excessive OOBFs. b. Spare Parts shipped by PCSS to I T from the Acquired Inventory, which have a warranty pass-through from the I T Spare Parts vendor shall be counted in calculating the above OOBF rate, and will incur a Performance Credit equal 16 to the greater of the OOBF credit payable by the repair vendor or the above Fifty Dollar ($50.00) amount. 4) EXCLUDED PARTS. Spare Parts excluded from the Performance Credit calculations specified in this Section 4 include Spare Parts which PCSS is unable to obtain, using its best efforts, as follows: a. Spare Parts for equipment that is no longer in production, which are no longer commercially available. b. Spare Parts for equipment that is newly introduced in the marketplace , which are not commercially available. c. Spare Parts for which I T and PCSS mutually agree that the above Performance Credits shall not apply. d. Any Spare Parts which for various reasons, become commercially unavailable on the terms of delivery and/or at the prices requested by I T, provided that any such Spare Parts are ordered by PCSS within one (1) business day of the request by I T. e. In each case above, commercially available shall mean obtainable by PCSS using its best efforts, within the context of the above provisions. F. ON-LINE ACCESS TO PCSS MIS, REPORTING AND INVENTORY CONTROL. PCSS shall provide I T with the following: 1) PCSS shall provide I T with communication software at no charge (including dedicated Data Circuit telephone line), pursuant to which I T and PCSS can communicate via on-line computer link, including the placement of Orders, providing shipment status information, account information, Spare Parts inventory availability, and access to prices and PCSS Cost information for Spare Parts and Repair Services Ordered hereunder. 2) PCSS shall track I T's Spare Parts purchases and Repair Services usage by computer system, and will provide regular reports, in the frequency, form, content and format mutually agreed to by the parties in writing, at no charge to I T, detailing such purchases and usage. 17 3) In addition, PCSS shall maintain a database which identifies and tracks all items of Spare Parts owned by I T or other parties, maintained in PCSS' inventory system, which such database shall be at all times accessible by I T remotely. G. SHIPMENT AND PACKAGING. Spare Parts shall be shipped in a manner so as to meet the Performance Requirements specified in this Agreement. PCSS shall pay the shipping costs for all Spare Parts purchased and/or receiving Repair Services under this Agreement, and shall pass on the direct costs of freight for Orders placed by I T under this Agreement. All Spare Parts shall be suitably packaged or otherwise prepared for shipment in accordance with industry standard packing materials. PCSS shall be responsible for the loss of and/or damage to all Spare Parts in PCSS's possession, or for items damaged and/or lost in shipment, and shall coordinate with freight vendors in any such event. PCSS shall provide adequate insurance coverage for any Spare Parts owned by I T or other parties, while any such Spare Parts are in PCSS's possession. H. DISCREPANCIES. 1) PCSS shall promptly notify I T as to any Spare Part which I T advises has been shipped to PCSS by I T which PCSS does not subsequently receive. I T shall provide PCSS with adequate substantiation of shipment (i.e., waybill number, etc.) upon request. 2) In the event Spare Part(s) received by PCSS from I T are not identical to the Spare Part(s) identified on the Order, PCSS shall immediately notify I T of the discrepancy which shall be no later than five (5) days from PCSS's receipt of any such Spare Part(s) and request a revised Order or instructions regarding the return shipment of the Spare Part(s). In the event PCSS fails to acknowledge any discrepancy in the Spare Part(s) delivered to PCSS within such five (5) day period, the Spare Part(s) shipped to PCSS shall be deemed to be in conformance with the Spare Part(s) identified on the Order. I. PAYMENT TERMS AND PRICE. 1) PAYMENT TERMS. All purchases under this Agreement shall be paid for in cash, COD, against a letter of credit, or on approved credit in accordance with the following: 18 a. During the term of this Agreement, purchases hereunder shall be payable on a net sixty (60) days basis from date of shipment of the ordered Spare Part . Invoices shall not be submitted to I T prior to delivery of any ordered Spare Part(s). b. PCSS shall extend an initial line of credit to I T in the amount of Eight Hundred Seventy-Five Thousand Dollars ($875,000) provided, however, that PCSS may upon ten (10) days written notice and failure to cure by I T, decrease such line of credit and payment terms if I T has undisputed payables to PCSS aged more than sixty (60) days. This line of credit shall be used exclusively for placing purchases under this Agreement. c. In the event I T exceeds the line of credit or extends beyond the net 60 day payment terms, PCSS shall be entitled to obtain payment of the amount over credit line from the Escrow Amount specified in paragraph 3.F.2), in accordance with the provisions of the Escrow Agreement. In the event the remaining balance of the Escrow Amount is insufficient to cover the amount due PCSS, or the Escrow Amount has been fully paid to I T, the following shall apply: i) Past due amounts shall be subject to an interest charge of the lesser of one and one-half percent (1-1/2%) per month or the highest rate permitted by law. ii) PCSS may suspend performance under any Order for which payment is not made provided that PCSS gives I T fifteen (15) days advance written notice of such suspension, and payment is not made within such period. In the event I T fails to remit payment in full of a duly invoiced amount within such fifteen (15) day period, PCSS may suspend any or all Orders under this Agreement. I T shall be entitled to this additional fifteen (15) day notification period no more than once per any six (6) month period during the term of this Agreement. 19 iii) Notwithstanding the above, in the event I T has a bona fide dispute with a PCSS invoice for Spare Parts, the parties shall in good faith work to promptly resolve any such dispute and PCSS agrees to continue to provide Spare Parts hereunder, provided that I T remits payment for any non- disputed line items set forth on any such invoice(s). iv) In the event the Parties are unable to resolve the dispute within thirty (30) days of the date I T notifies PCSS of any such dispute, PCSS may exercise any of its remedies as specified herein. d. In addition, Spare Parts and/or Repair Services may be paid for through the redemption of Performance Credits as specified in paragraph 4.E. above. 2) CALCULATION OF PCSS COST(S). a. The prices charged for Spare Parts and/or Repair Services under this Agreement shall be determined by utilizing an amount designated as the "PCSS Cost", and applying a percentage uplift, as provided for in paragraph 4.I.3).d. below. b. The PCSS Cost shall be calculated by determining PCSS average acquisition cost (rather than FIFO or LIFO) determined in accordance with Generally Accepted Accounting Principles ("GAAP") applied on a consistent basis. In all cases, the term "cost" shall refer to the actual direct amounts incurred by PCSS with regard to fulfilling I T Orders under the Agreement, less all discounts (excluding payment discounts), rebates (excluding existing rebates as of the effective date of this Agreement), or other adjustments. c. For Spare Parts repaired by PCSS, PCSS Cost shall be determined based on PCSS' actual direct costs of manufacturing materials, direct manufacturing overhead, general inbound freight directly associated with purchased Spare Parts, license fees paid to third-parties on affected Orders, and direct labor. 20 d. For the purposes of establishing the price to be paid by I T for purchases made hereunder by I T of items of Acquired Inventory, the factor utilized by PCSS as a base cost factor shall be Four Million Dollars ($4,000,000), which shall be allocated proportionately over the items of Acquired Inventory specified in the attached Schedule A. e. Direct manufacturing overhead shall be computed in a manner consistent with the accounting practices used in the Ordinary Course of Business by PCSS to calculate its cost of goods sold (in accordance with GAAP) as reported in PCSS' audited annual financial statements as of PCSS' most recent business year end. f. Direct manufacturing overhead includes only those overhead costs directly attributable to the manufacturing process of Spare Parts and/or Repair Services ordered hereunder. 3) PRICE. a. The price of Spare Parts and/or Repair Services under this Agreement shall be equal to the PCSS Cost plus the percentage indicated in the Confidential Pricing Schedule (hereinafter referred to as the "Pricing Schedule"), or the applicable flat rate charge specified in the Pricing Schedule. b. Special Order Spare Parts not regularly stocked by PCSS which are sought to be exchanged by I T, shall be amortized ratably over four (4) usable cycles. I T shall pay PCSS an amortization factor in accordance with the above cycle, if any such Special Order Spare Parts are not exchanged or sold at least twice per calendar year. c. PRICE CHART. The price for Spare Parts shall be the PC Cost(s) and percentage uplifts specified in the Pricing Schedule. For the purposes of the Price Chart specified in the Pricing Schedule, the following terms have the following meanings: 21 (1) "Normal Parts" refers to Spare Parts of a type and brand generally maintained by PCSS in its inventory or acquired in the Ordinary Course of Business. (2) "Sourced Parts" refers to Spare Parts of a type and brand not generally held in inventory by PCSS and ordered by PCSS for I T through another supplier. (3) "Repairs and Exchanges" refers to repaired or replaced Spare Parts, including circumstances where the Spare Part being replaced is exchanged for a new Spare Part, and in such circumstances the Spare Part being exchanged is not part of Normal Parts for the purposes of the Price Chart specified in the Pricing Schedule. (4) "I T Items" refers to Spare Parts in I T's Acquired Inventory acquired by PCSS pursuant to this Agreement. (5) "Internal Repairs" refers to repairs performed by PCSS. (6) "External Repairs" refers to repairs performed by a party other than PCSS. 4) HANDLING SERVICE FEE FOR NON-PCSS PARTS. In the event PCSS is requested to handle and ship spare parts which are purchased by I T and/or its customers outside the scope of this Agreement (such as spare parts No-Bid by PCSS, or parts consigned by I T Customers for labor-only Service arrangements), PCSS will agree to manage and process any such parts for a flat Service fee to be mutually agreed to by the parties in writing. 5) AVERAGE REPAIR PRICE. During each month of the initial twelve (12) month period of the Agreement, the average repair price for all Spare Parts undergoing Repair Services shall not exceed the actual average repair cost for Spare Parts repaired internally by I T during the 6 months ended March 31, 1994. 6) MOST FAVORED PROVISIONS. All of the prices, terms, warranties and benefits provided by PCSS herein and/or in any Order are, in the aggregate, comparable to or better than the prices, terms, warranties and benefits being offered by PCSS to any of its other customers for similar sale of Spare 22 Parts and/or Repair Services as of the date of this Agreement. In the event PCSS shall, during the term of this Agreement, enter into a transaction with any other customer for the sale of Spare Parts and/or Repair Services of like quantities of similar items, on terms and conditions which collectively, are substantially more favorable than those offered to I T, then PCSS shall, upon I T's request, negotiate with the view towards granting comparably more favorable terms and conditions to I T with respect to the sale of Spare Parts and/or Repair Services ordered by I T from PCSS thereafter. J. RETURN PRIVILEGES. I T shall have the right to return Spare Parts sold under this Agreement in accordance with this paragraph. Returns must be delivered to PCSS within 30 days of delivery to I T, must be unused and in the same condition as when delivered to I T, less reasonable wear due to shipment. Returns in any month may not exceed a value equal to 35% of the prior months gross purchases (prior to the application of any credits). The first 15% of such 35% of returned Spare Parts shall be subject to a $10 per unit restocking fee, and the remaining 20% of such 35% shall be subject to a restocking fee equal to 20% of the sales price of any such Spare Part, but in no event less than $10 per unit. K. RECORDS REVIEW. At any time, I T shall be allowed to review the books and records of PCSS to the extent such books and records relate to the determination of PCSS' cost(s) as set forth in this Agreement. If any dispute arises between the Parties with respect to the determination of PCSS' cost(s), then, at the request of either I T or of PCSS, the matter shall be referred to a mutually agreed-upon nationally- recognized accounting firm (the "Independent Accountant") for determination of PCSS's cost(s) in accordance with the terms of this Agreement. The method for selecting the Independent Accountant shall be as follows: 1) Both Parties shall designate a representative from the accounting firm that represents each Party. The designated representatives shall then be required to agree on the selection of a third individual, who shall be selected from an accounting firm unaffiliated with either party and be designated as the Independent Accountant. 2) The Independent Accountant shall not have performed services for I T or PCSS during the eighteen (18) months prior to the dispute. The determination of the Independent Accountant shall be final and 23 binding upon the parties, with appropriate adjustments immediately implemented. The fees and expenses of the Independent Accountant shall be paid one-half (1/2) by I T and one-half (1/2) by PCSS. L. ADDITIONAL REPRESENTATIONS AND COVENANTS OF I T AND PCSS. 1) I T and PCSS agree to cooperate in good faith through regular communications concerning expected Spare Parts and Repair Services purchase requirements, delivery requirements, and other issues relating to PCSS's sale and delivery of Spare Parts and/or Repair Services under this Agreement. 2) PCSS shall maintain an ongoing inventory and/or sources of inventory of Spare Parts sufficient to meet the expected Ordering requirements of I T under this Agreement, provided that such maintenance is consistent with PCSS's expectations as communicated to PCSS and consistent with I T's prior purchases from PCSS, during the Ordinary Course of Business. M. ADDITIONAL CHARGES. PCSS shall obtain written consent from I T prior to performing Repair Services which are beyond the scope of this Agreement and specified on the face of an Order. PCSS's failure to obtain such written consent shall relieve I T from paying any additional charges not specified in this Agreement or the Order. N. PARTS. All Spare Parts that are provided by I T to PCSS on an exchange basis, to be replaced by Spare Parts provided by PCSS shall become the property of PCSS. Spare Parts provided by PCSS in performance of Repair Services may be new or refurbished Spare Parts which are functionally equivalent to new Spare Parts and meet and/or exceed the OEM's then current specifications for form, fit, function and finish and may be from sources other than the OEM, unless otherwise specifically requested to be a "like-for-like" replacement at time of Order placement by I T. I T may inspect PCSS's repair facilities at any time upon giving PCSS reasonable notice of prior to any such inspection. I T shall have a period of up to thirty (30) days from date of receipt of the Spare Part provided on an exchange basis by I T, in which to return the Spare Part "core" being exchanged by PCSS. In the event I T fails to return any such exchanged Spare Part core within such period, PCSS may invoice I T for the cost of such Spare Part core. O. PARTS WARRANTY. PCSS warrants to I T and I T's Customers that the Spare Part(s) will be shipped as specified from time to time by I T and will be in good operating 24 condition, is at current minimum revision level and will be free of defects in design, material, workmanship for a minimum period of the greater of: (1) the warranty period provided by any vendor of PCSS on a pass-through basis, or (2) One Hundred twenty (120) days, whichever is greater, from first date of delivery to I T. Acquired Parts which do not contain a pass-through warranty from I T's Spare parts Vendors are excluded from the above warranty. 5. GENERAL. A. TERM AND TERMINATION. 1) The initial term of this Agreement shall begin on the Closing Date and shall continue for a period of five (5) years from such date. Thereafter, the term shall continue unless terminated by either party upon the provision of at least one hundred eighty (180) days prior written notice, effective no sooner than the expiration of the initial term of this Agreement. 2) In the event PCSS fails to fulfill the provisions of the section of this Agreement entitled "Performance Requirements" and I T elects to terminate this Agreement as a result of such failure, I T shall be entitled to all of the following remedies if and only if the failure is a material failure followed promptly thereafter by written notice of such failure by I T to PCSS and following that notice such failure by PCSS reoccurs within 6 months of the failure described in the notice: a. by delivering instructions to the Escrow Agent as provided for in the Escrow Agreement, the balance of the Escrow Amount shall be delivered to Fidelity on behalf of I T, without opposition by PCSS, and b. all outstanding Purchase Credits earned by I T as of the effective date of termination shall be immediately due and payable in Cash to Fidelity on behalf of I T, net of any payables due PCSS by I T for Spare Parts and/or Repair Services ordered hereunder, and c. One Million, One Hundred Thousand Dollars ($1,100,000) shall be immediately due, payable, and paid in Cash to Fidelity on behalf of I T, and 25 d. PCSS shall return any remaining Acquired Inventory as of the effective date of termination of this Agreement. In addition, PCSS shall be responsible for all costs associated with movement, packaging and shipment of any such Acquired Inventory to a location or locations specified by I T. e. The remedies specified in 5.A.2).a through 5.A.2). d. above shall be considered liquidated damages in lieu of cover or any other damages which I T might allege as a result of such termination, and shall be considered the sole and exclusive remedy available to I T with regard to the termination of this Agreement as provided for hereinabove. 3) PCSS may terminate this Agreement without cause, provided that PCSS shall provide I T with a minimum notice period of one (1) year, and I T shall be entitled to all of the remedies specified in paragraph 5.A.2). above. In any such event, I T may choose to accept the termination prior to the one (1) year termination notice period provided by PCSS, at I T's sole discretion. 4) PCSS may terminate this Agreement for cause in the event of a material breach or if I T fails to order a minimum of One Hundred Thousand Dollars ($100,000) in Spare Parts and/or Repair Services (net of returns but including any fees paid by I T) per month, during any three (3) consecutive month period during the term of this Agreement, and PCSS shall be entitled to the remedies specified in paragraph 3.H.1). and 3.H.2). above. In any such event, I T will forego the remedies specified in Section 5.A.2) above. 5) In the event of any such termination as provided for in paragraphs 5.A.1) through 5.A.4). above, both parties agree to cooperate with each other in good faith during the period of time required for the successful transition of I T to a new spare parts provider, and I T shall be entitled to any Performance Credits or other remedies specified in this Agreement for failure by PCSS to perform during the transition period. B. ACCOUNT MANAGER. I T and PCSS will assign specific managerial employees to be designated as Account Managers between the parties, who shall serve as a central focal point to address issues and implement solutions to ongoing account problems as they occur. 26 C. MISCELLANEOUS. 1) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of the Parties contained in this Agreement shall survive the Closing. 2) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any press release or make any public announcement relating to the subject matter of this Agreement, prior to the Closing, without the prior written approval of the other Party; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing Party will use its reasonable best efforts to advise the other Party prior to making the disclosure). 3) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns. 4) ENTIRE AGREEMENT. This Agreement (including the documents referred to herein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements, or representations by or between the Parties, written or oral, to the extent they related in any way to the subject matter hereof. 5) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other Party, which consent shall not be unreasonably withheld. 6) COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. 7) HEADINGS. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 27 8) NOTICES. All notices, requests, demands, claims, and other communications hereunder will be in writing or by electronic communication (e.g. communication of information by computer, not to include telephonic verbal notices). Any notice, request, demand, claim, or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: If to I T: INTELOGIC TRACE, INC. Turtle Creek Tower I P.O Box 400044 San Antonio, Texas 78229 ATTN: Account Manager PCSS Relationship Copy to: INTELOGIC TRACE, INC. Turtle Creek Tower I P.O Box 400044 San Antonio, Texas 78229 ATTN: General Counsel Mail Stop 8480 If to PCSS: PC SERVICE SOURCE, INC. 2019 McKenzie Suite 150 Carrollton, Texas 75006 ATTN: Account Manager I T Relationship Copy to: PC SERVICE SOURCE, INC. 2019 McKenzie Suite 150 Carrollton, Texas 75006 ATTN: Chief Financial Officer Any Party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the 28 address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Party notice in the manner herein set forth. 9) GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Texas without giving effect to any choice or conflict of law provision or rule (whether of the State of Texas or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Texas. 10) CONFIDENTIALITY. Except as otherwise provided for in this Agreement, PCSS and I T agree that all information communicated to each other by the other, whether before or after the Closing Date of this Agreement, including without limitation the terms of this Agreement, will be received in strict confidence, will be used only for purposes of this Agreement, and will not be disclosed by the receiving party, its agents, subcontractors or employees without the prior written consent of the other Party. Each Party agrees to use the same means it uses to protect its own confidential information, but in any event not less than reasonable means, to prevent the disclosure of such information to outside parties. However, neither party shall be prevented from disclosing information which belongs to such Party or is: a. already known by the receiving Party without an obligation of confidentiality other than pursuant to this Agreement; b. publicly known or becomes publicly known through no unauthorized act of the recipient Party; c. rightfully received from a third party; d. independently developed without use of the other Party's confidential information; e. disclosed without similar restrictions to a third party by the Party owning the confidential information; f. approved by the other Party for disclosure; 29 g. required to be disclosed pursuant to a requirement of a governmental agency or law if the disclosing Party provides the other Party with notice of this requirement prior to disclosure. The provisions of this Section will survive the expiration or termination of this Agreement for any reason. 11) INDEPENDENT CONTRACTOR. PCSS is and shall remain an independent contractor and at no time shall PCSS represent itself to be an employee, agent, affiliate or representative of I T. 12) NON-SOLICITATION. A. PCSS shall not solicit any I T Customer whose identity is disclosed by I T to PCSS for the purpose of diverting business from I T. B. The Parties recognize that the education, training and retention of their respective personnel is essential. So as to preserve and protect such capabilities, each party agrees that during the period of this Agreement and for a period of one (1) year after termination of this Agreement, neither party shall, directly or indirectly, recruit or solicit any personnel of the other (except that PCSS may solicit and hire the I T employees specified in Schedule D) without first obtaining the express written consent of an officer of the employer. In the event of breach of this provision, the hiring party shall pay the other party liquidated damages equal to three (3) times the annual compensation of such employee at the time hired. 13) FORCE MAJEURE. Each Party shall be excused from performance hereunder (other than performance of obligations to make payment) for any period and to the extent that it is prevented from performing pursuant hereto, in whole or in part, as a result of delays caused by the other, or an act of God, war, civil disturbance, court order, labor dispute, or other cause beyond its reasonable control; however, I T may acquire Spare Parts and/or Repair Services from other sources during such event affecting PCSS. 30 14) COMPLIANCE WITH LAWS. PCSS and I T shall comply with all applicable federal, state, municipal and local laws, codes, orders and regulations. 15) AMENDMENTS AND WAIVERS. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by PCSS and I T. No waiver by any Party of any default, misrepre- sentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. Neither I T nor PCSS shall be bound by any oral agreement or representation irrespective of by whom or when made. 16) SEVERABILITY. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. 17) WARRANTY DISCLAIMER. PCSS DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 18) LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE IN CONTRACT, TORT OR OTHERWISE FOR INCIDENTAL, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES, INCLUDING WITHOUT LIMITATION, LOST BUSINESS PROFITS NOR DAMAGE OR DESTRUCTION OF DATA EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SAME. 19) DISPUTE RESOLUTION. a. QUALITY REVIEW. On a regular basis, at least once annually, both parties agree to meet to review the performance of their respective obligations under this Agreement. b. PERFORMANCE REVIEW. During the course of the relationship provided for in this Agreement, disputes, controversies or claims may arise between the parties. To minimize the expense to and impact on each party of formally resolving such disputes, controversies and claims, the parties will meet regularly to 31 review the performance of each party of its obligations under this Agreement. If the parties are unable to resolve a dispute, controversy or claim through this performance review process, upon the written request of either party signed by an Officer with the rank of Vice President or higher, each party will appoint a representative whose task it will be to meet for the purpose of resolving the dispute, controversy or claim and to negotiate a resolution in good faith, without the necessity of any formal proceeding relating thereto. No formal proceedings for the resolution of such dispute, controversy or claim may be commenced until either or both of the appointed representatives conclude in good faith that amicable resolution through continued negotiation of the matter is not likely. Except where clearly prevented by the area in dispute, both parties agree to continue performing their respective obligations under this Agreement while the dispute is being resolved unless and until such obligations are terminated or expire in accordance with the provisions hereof. c. ARBITRATION. The parties agree that in the event they are unable to resolve a dispute, controversy or claim as provided for above, the dispute, controversy or claim shall be settled by arbitration in the city where the initiating party is headquartered by a single arbitrator pursuant to the American Arbitration Association's Commercial Arbitration Rules then obtaining and judgment upon the award rendered by the arbitrator may be entered in any Court having jurisdiction thereof. The arbitrator shall be chosen from a panel of persons knowledgeable in the provision of services for similar types of equipment and shall be appointed within thirty (30) days of the date the demand for arbitration was sent to the other party. 20) APPROVALS AND SIMILAR ACTIONS. Where agreement, approval, acceptance, consent or similar action by either party is required by any provision of this Agreement, such Action shall not be unreasonably delayed or withheld. 32 21) CONTRACTUAL STATUTE OF LIMITATIONS. No claim and/or demand for arbitration or cause of action which arose out of an event or events which occurred more than two (2) years prior to the filing of a demand for arbitration or suit alleging a claim or cause of action may be asserted by either party against the other party. 22) ACKNOWLEDGMENT OF RISK. PCSS and I T each acknowledge that the limitations and exclusions contained in this Agreement have been the subject of active and complete negotiation between the Parties and represent the Parties' agreement based upon the level of risk to PCSS and I T associated with their respective obligations under this Agreement and the payments to be made to PCSS and I T under this Agreement. 23) EXPENSES. Each of PCSS and I T will bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. 24) INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and Schedules identified in this Agreement are incorporated herein by reference and made a part hereof. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date last written below. INTELOGIC TRACE, INC. PC SERVICE SOURCE, INC. By: MARK S. HELWEGE By: MARK T. HILZ Name: Mark S. Helwege Name: Mark T. Hilz Title: President and Chief Title: President and Chief Executive Officer Executive Officer Date: 11/11/94 Date: 11/17/94 33 EX-10.33 5 EMPLOYMENT AGREEMENT HELWEGE EXHIBIT 10.33 EMPLOYMENT AGREEMENT This Agreement is made as of as of the date last indicated below by and between MARK S. HELWEGE whose residence is located at 1627 Wood Quail, San Antonio, Texas 78248 (hereafter "Executive") and INTELOGIC TRACE, INC. located at 8415 Datapoint Drive, San Antonio, Texas 78229 (hereafter "I T"). 1. The Employment Clause I T hereby agrees to and does hereby employ the Executive, and the Executive hereby agrees to and does hereby continue in the employ of I T, for the period set forth in paragraph 2 below (the Period of Employment), in the position and with the duties and responsibilities set forth in paragraph 3 below, and upon the other terms and conditions set forth in this Agreement. 2. Period of Employment The Period of Employment shall commence on the date of this Agreement and, subject only to the provisions of Paragraphs 8 and 9 below, relating, respectively, to death and disability, shall continue until the close of business one (1) year from the date last written below or such later date as shall result from a written agreement executed by both parties to this Agreement. In the event that the Executive shall continue in the full-time employment of I T after such one (1) year period or such later date without a written extension of this Agreement, such continued employment shall be for successive annual periods and shall be subject to the terms and conditions of this Agreement and the period of Employment shall include the period during which the Executive in fact so continues in such employment. 3. The Position a. It is contemplated that during the Period of Employment the Executive shall continue to serve as President and Chief Executive Officer. b. At all times during the Period of Employment, the Executive shall hold a position of responsibility and importance, with the functions, duties and the responsibilities of an officer of I T. I T reserves the right to make such organizational and reporting changes as the Office of the President may, in good faith, deem desirable and for the good of I T. 1 4. The Performance Clause Throughout the Period of Employment, the Executive agrees to devote Executive's full time and undivided attention during normal business hours to the business and affairs of I T and its subsidiaries and divisions, except for earned vacations and except for illness or incapacity; but nothing in this Agreement shall preclude the Executive from devoting reasonable periods required for a) serving as a director, trustee or member of a committee of any organization involving no conflict of interest with the interests of I T; b) delivering lectures, fulfilling speaking engagements, teaching at educational institutions or business organizations; c) engaging in charitable and community activities; and d) managing Executive's personal investments, provided that such activities do not, individually or together, interfere with the regular performance of duties and responsibilities under this Agreement. 5. The Compensation Clause a. For all services to be rendered by the Executive in any capacity during the Period of Employment, including, without limitation, services as an executive, officer, director or member of any committee of I T and its subsidiaries, divisions and affiliates, the Executive shall be paid as compensation: i) a base or fixed salary, payable not less often than at the end of each bi-weekly period, at the rate of $6,346.15 and shall thereafter be increased to $7,692.30 per bi-weekly period upon the earlier of (i) I T generating a net profit before taxes in any quarter, or (ii) as of the closing date if I T is sold; and ii) An annual incentive award or bonus earned under I T's Management Incentive Compensation Plan or such equivalent successor plan as may be adopted by I T. iii) for the 1995 fiscal year, the Management Incentive Compensation Plan shall provide that Executive shall be entitled to a bonus of .75% of I T's net operating income from operations up to $5 million and 1% of all net operating income above $5 million, subject to a maximum annual payment of $75,000, which will be paid quarterly based upon year-to-date 2 performance within twenty (20) days of the publication of I T's 1995 quarterly results provided that Executive is actively employed on such date. b. Any increase in salary pursuant to (a) above or in annual incentive awards or other compensation shall in no way diminish any other obligations of I T under this Agreement. c. The compensation provided for in paragraph (a) above, together with the perquisites and benefits set forth in paragraph 6 below, are in addition to the benefits provided for in paragraph 7 of this Agreement. d. I T shall promptly establish a new qualified employee stock option plan substantially similar to the 1985 Employee Stock Option Plan of I T. Executive shall be provided with a grant of stock options under the new stock option plan. The quantity and vesting schedule shall be mutually agreed upon with the quantity to be commensurate with the office of the Executive. Provisions for Perquisites During the Period of Employment the Executive shall be entitled to perquisites, including, without limitation, an appropriate office, secretarial and clerical staff, and fringe benefits provided Executive at the time of this Agreement, including tax preparation assistance, an automobile allowance of $650 per month, as well as the reimbursement, upon proper accounting, of reasonable expenses and disbursements incurred by Executive in the course of Executive's duties. Executive should be entitled to four (4) weeks of vacation per year. 7. Employee Benefit Plans a. The Executive, Executive's dependents and beneficiaries, including, without limitation, any beneficiary of a joint and survivor or other optional method of payment applicable to the payment of benefits under the Retirement Income Plan of I T, as defined in paragraph (c) below, shall be entitled to all payments and benefits and service credit under the terms of employee benefit plans and practices of I T, including, without limitation, the 401(k) Plan of I T, as defined in paragraph (c) below, its death benefit plans (consisting of its Executive Benefit Plan for Management Employees providing term life insurance, accidental death and dismemberment insurance, and travel accident insurance), its disability benefit plans providing salary continuation, sickness and accident and long-term disability benefits, its standard medical, dental and health, and welfare plans and other present or equivalent successor plans and practices of I T. 3 Executive shall participate in I T's Executive Medical Plan subject to a maximum of $15,000 per annum. b. Nothing in this Agreement shall preclude I T from amending or terminating any employee benefit plan or practice, including, but not limited to, the 401(k) Plan but, it being the intent of the parties that the Executive shall continue to be entitled during the Period of Employment to perquisites as set forth in paragraph 6 above at least equal to those attached to Executive's position on the date of this Agreement, nothing in this Agreement shall operate or be construed to reduce, or authorize a reduction, without the Executive's written consent, in the level of such perquisites and benefits taken as a whole; provided, however, that I T reserves the unilateral right to revise or terminate any such perquisites or benefits if such revision or termination applies to all employees eligible to receive same. If and to the extent that such perquisites, benefits, and service credits are not payable or provided under any such plans or practices by reason of such amendment or termination thereof, I T itself shall pay or provide therefor. 8. Effect of Death In the event of the death of the Executive during the Period of Employment, the legal representative of the Executive shall be entitled to the base or fixed salary provided for in paragraph 5(a)(i) above for the month in which death shall have occurred, at the rate being paid at the time of death, and the Period of Employment shall be deemed to have ended as of the close of business on the last day of the month in which death shall have occurred but without prejudice to any payments otherwise due in respect of the Executive's death. 9. Effect of Disability a. In the event of the Disability of the Executive during the Period of Employment, the Executive shall be entitled to an amount equal to the base or fixed salary provided for in paragraph 5(a)(i) above, at the rate being paid at the time of the commencement of Disability, for the period of such Disability but not in excess of twelve (12) months from the end of the period that establishes such Disability, as described in paragraph 9(c) below. b. The amount of any payments due under paragraph 9(a) shall be reduced by any payments to which the Executive may be entitled for the same period because of disability under any disability or pension plan of I T or of any division, subsidiary, or affiliate thereof, or as the result of workers' compensation or non-occupational disability payments received from any governmental entity. 4 c. The term "Disability", as used in this Agreement, shall mean an illness or accident occurring during the Period of Employment which prevents the Executive from performing Executive's duties under this Agreement for a period of six (6) consecutive months. The Period of Employment shall be deemed to have ended as of the close of business on the last day of such six (6) month period but without prejudice to any payments due the Executive in respect of disability under paragraph 9(a) or otherwise due to Executive or Executive's legal representative or beneficiary. 10. Provision of Severance Allowance a. In the event of termination of the employment of the Executive by I T during the Period of Employment for any reason other than for Cause, as defined in paragraph 10(d) below, I T shall pay the Executive a severance allowance by continuing Executive's base or fixed salary for thirty-nine (39) consecutive bi-weekly pay periods commencing as of the date of termination plus $20,000 as a lump sum on such date of termination plus a bonus of a pro rata amount based upon Executive's last preceding Management Incentive Compensation award. b. During the period that the payments provided for in paragraph 10(a) are required to be made, the Executive, Executive's dependents, and beneficiaries shall continue to be entitled to receive an automobile allowance and continuation all life and health insurance to the same extent as if the Executive were still employed during such period. If and to the extent that such benefits shall not be payable under any such plan by reason of the Executive's no longer being an employee of I T, I T shall itself pay or provide for payment of such benefits to the Executive, Executive's dependents and beneficiaries. c. For the purpose of this Agreement, termination of the Executive's employment shall be deemed to have been for Cause (and in which case I T shall have no obligation to Executive whatsoever) only: i) if termination of Executive's employment shall have been the result of an act or acts of fraud, theft or embezzlement on the part of the Executive which, if convicted, would constitute a felony and which results or which is intended to result directly or indirectly in gain or personal enrichment of Executive at the expense of I T, or ii) if the Executive shall breach the provisions set forth in the Memorandum of Employment between Executive and I T, or 5 iii) if termination of Executive's employment results from Executive's unreasonable neglect or refusal of Executive to perform the duties appropriate to Executive's position and Executive has been given written notice by the Office of the President with respect to such neglect or refusal and Executive continues to unreasonably refuse or neglect the performance of the duties specified, or iv) if there has been a breach by the Executive during the Period of Employment of the provisions of paragraph 4 above, relating to the time to be devoted to the affairs of I T, and with respect to any alleged breach of paragraph 4 hereof, the Executive shall have substantially failed to remedy such alleged breach within thirty (30) days from Executive's receipt of written notice from the Office of the President. e. During the period that Executive accepts the severance allowance provided herein, Executive agrees not to directly recruit or solicit any employee or customer of I T or actively participate in the solicitation of any employee or customer of I T. f. In order to obtain the severance allowance provided for in this Article, Executive shall submit a Request for Severance identical to Exhibit A hereof. I T shall have no obligation to pay any severance allowance unless and until Executive shall have submitted the Request for Severance. 11. No Trust Created Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust fund of any kind. Any funds which may be set aside or provided for in this Agreement shall continue for all purposes to be a part of the general funds of I T and no person other than I T shall by virtue of the provisions of this Agreement have any interest in such funds. To the extent that any person acquires a right to receive payments from I T under this Agreement, such right shall be no greater than the right of any unsecured general creditor of I T. 6 12. Successor In Interest This Agreement and the rights and obligations hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, and shall also bind and inure to the benefit of any successor of I T by merger or consolidation or any purchaser or assignee of all or substantially all of its assets, but, except to any such successor, purchaser or assignee of I T, neither this Agreement nor any rights or benefits hereunder may be assigned by either party hereto. 13. Invalid Provision In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. 14. Arbitration of Disputes The parties agree that any controversy or claim arising out of or relating to this Agreement, or any dispute arising out of the interpretation or application of this Agreement, which the parties hereto are unable to resolve, shall be finally resolved and settled exclusively by arbitration in San Antonio, Texas by a single arbitrator under the American Arbitration Association's Commercial Arbitration Rules then obtaining and in accordance with the substantive laws of the State of Texas. If the parties cannot agree upon an arbitrator out of the panel for the sole purpose of selecting an arbitrator, then each party shall choose its own independent representative and those independent representatives shall in turn choose the single arbitrator within thirty (30) days of the date of the selection of the first independent representative. The parties severally recognize and consent to the jurisdiction over each of them by the Courts of the State of Texas. The legal expenses of Executive shall be reimbursed to Executive if an award is rendered in favor of Executive or if the arbitrator finds that Executive exercised good faith in demanding arbitration of any such dispute. 15. Governing Laws This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas applicable to agreements made and to be performed entirely in Texas. 7 16. Entire Agreement This Agreement shall constitute the entire agreement between the parties superseding all prior agreements, and may not be modified or amended and no waiver shall be effective unless by written document signed by both parties hereto after first being authorized by the Compensation Committee of the Board of Directors of I T and recorded in the approved minutes of such meeting. This Agreement shall become effective as of the date of confirmation of the reorganization plan of I T and shall at such time supersede the Agreement of July 28, 1991, as amended, on July 31, 1992 and June 1, 1994. Executed as of the 1st day of December, 1994. INTELOGIC TRACE, INC. MARK S. HELWEGE By: PHILIP D. FREEMAN Mark S. Helwege "Executive" 8 EX-10.34 6 EMPLOYMENT AGREEMENT FREEMAN EXHIBIT 10.34 EMPLOYMENT AGREEMENT This Agreement is made as of the last date indicated below by and between PHILIP D. FREEMAN whose residence is located at 3403 Hunters Stand, San Antonio, Texas 78230 (hereafter "Executive") and INTELOGIC TRACE, INC. located at 8415 Datapoint Drive, San Antonio, Texas 78229 (hereafter "I T"). 1. The Employment Clause I T hereby agrees to and does hereby employ the Executive, and the Executive hereby agrees to and does hereby continue in the employ of I T, for the period set forth in paragraph 2 below (the Period of Employment), in the position and with the duties and responsibilities set forth in paragraph 3 below, and upon the other terms and conditions set forth in this Agreement. 2. Period of Employment The Period of Employment shall commence on the date of this Agreement and, subject only to the provisions of Paragraphs 9 and 10 below, relating, respectively, to death and disability, shall continue until the close of business two (2) years from the date last written below or such later date as shall result from a written agreement executed by both parties to this Agreement. In the event that the Executive shall continue in the full-time employment of I T after such two (2) year period or such later date without a written extension of this Agreement, such continued employment shall be for successive annual periods and shall be subject to the terms and conditions of this Agreement and the period of Employment shall include the period during which the Executive in fact so continues in such employment. 3. The Position a. It is contemplated that during the Period of Employment the Executive shall continue to serve as Senior Vice President, General Counsel and Secretary. b. At all times during the Period of Employment, the Executive shall hold a position of responsibility and importance, with the functions, duties and the responsibilities of an officer of I T. It is expressly understood that nothing in the foregoing shall preclude the President and Chief Executive Officer from making such organizational and reporting changes as the President and Chief Executive Officer may, in good faith, deem desirable and for the good of I T. 1 4. The Performance Clause Throughout the Period of Employment, the Executive agrees to devote Executive's full time and undivided attention during normal business hours to the business and affairs of I T and, in particular, to performance of all the duties and responsibilities as Vice President, General Counsel and Secretary of I T and its subsidiaries and divisions, except for reasonable vacations and except for illness or incapacity; but nothing in this Agreement shall preclude the Executive from devoting reasonable periods required for a) serving as a director, trustee or member of a committee of any organization involving no conflict of interest with the interests of I T; b) delivering lectures, fulfilling speaking engagements, teaching at educational institutions or business organizations; c) engaging in charitable and community activities; and d) managing Executive's personal investments, provided that such activities do not, individually or together, interfere with the regular performance of duties and responsibilities under this Agreement. 5. The Compensation Clause a. For all services to be rendered by the Executive in any capacity during the Period of Employment, including, without limitation, services as an executive, officer, director or member of any committee of I T and its subsidiaries, divisions and affiliates, the Executive shall be paid as compensation: i) a base or fixed salary, payable not less often than at the end of each bi-weekly period, at the rate of $5,446.40 per bi-weekly period; and ii) An annual incentive award or bonus earned under I T's Management Incentive Compensation Plan or such equivalent successor plan as may be adopted by I T. iii) for the 1995 fiscal year, the Management Incentive Compensation Plan shall provide that Executive shall be entitled to a bonus of .75% of I T's net operating income from operations up to $5 million and 1% of all net operating income above $5 million, subject to a maximum annual payment of $75,000, which will be paid quarterly based upon year-to-date performance within twenty (20) days of 2 the publication of I T's 1995 quarterly results provided that Executive is actively employed on such date. b. Any increase in salary pursuant to (a) above or in annual incentive awards or other compensation shall in no way diminish any other obligations of I T under this Agreement. c. The compensation provided for in paragraph (a) above, together with the perquisites and benefits set forth in paragraphs 6 and 7 below, are in addition to the benefits provided for in paragraph 8 of this Agreement. d. I T shall promptly establish a new qualified employee stock option plan substantially similar to the 1985 Employee Stock Option Plan of I T. Executive shall be provided with a grant of stock options under the new stock option plan. The quantity and vesting schedule shall be mutually agreed upon with the quantity to be commensurate with the office of the Executive. 6. Provisions for Perquisites During the Period of Employment the Executive shall be entitled to perquisites, including, without limitation, an appropriate office, secretarial and clerical staff, and fringe benefits accorded executives of equal rank including, without limitation, the Executive Benefit Plan, including tax preparation assistance, $650 per month automobile allowance, and payment or reimbursement of club initiation fees, dues and charges, in each case at least equal to those attached to Executive's office on the date of this Agreement, as well as to reimbursement, upon proper accounting, of reasonable expenses and disbursements incurred by Executive in the course of Executive's duties. 7. Participation in Management Incentive Compensation Plan During the Period of Employment, the Executive shall be and continue to be a full participant in the Incentive Stock Option Plan of I T and in any and all other executive incentive and compensation plans in which executives of I T participate, both those that are in effect on the date of this Agreement and any equivalent successor plans that may be adopted by I T. Nothing in this Agreement shall preclude improvement of reward opportunities in such plans or other plans in accordance with the practice of I T. 8. Employment Benefit Plans a. The Executive, Executive's dependents and beneficiaries, including, without limitation, any beneficiary of a joint and survivor or other optional method of payment applicable to the payment of benefits under the 401(k) 3 Plan of I T, as defined in paragraph (c) below, shall be entitled to all payments and benefits and service credit for benefits during the Period of Employment to which officers of I T, their dependents and beneficiaries are entitled as the result of the employment under the terms of employee benefit plans and practices of I T, including, without limitation, the 401(k) Plan of I T, as defined in paragraph (c) below, its death benefit plans (consisting of its Executive Benefit Plan for Management Employees providing term life insurance, accidental death and dismemberment insurance, and travel accident insurance), its disability benefit plans providing salary continuation, sickness and accident and long-term disability benefits, its standard medical, dental and health (subject to a maximum of $10,000 per year under the Executive Medical Plan), and welfare plans and other present or equivalent successor plans and practices of I T, its subsidiaries and divisions, for which officers, their dependents, and beneficiaries, are eligible and to all payments or other benefits under any such plan or practice subsequent to the Period of Employment as a result of participation in such plan or practice during the Period of Employment. b. Nothing in this Agreement shall preclude I T from amending or terminating any employee benefit plan or practice, but it being the intent of the parties that the Executive shall continue to be entitled during the Period of Employment to perquisites as set forth in paragraph 6 above at least equal to those attached to Executive's position on the date of this Agreement, nothing in this Agreement shall operate or be construed to reduce, or authorize a reduction, without the Executive's written consent, in the level of such perquisites and benefits taken as a whole. If and to the extent that such perquisites, benefits, and service credits are not payable or provided under any such plans or practices by reason of such amendment or termination thereof, I T itself shall pay or provide therefor. 9. Effect of Death In the event of the death of the Executive during the Period of Employment, the legal representative of the Executive shall be entitled to the base or fixed salary provided for in paragraph 5(a)(i) above for the month in which death shall have occurred, at the rate being paid at the time of death, and the Period of Employment shall be deemed to have ended as of the close of business on the last day of the month in which death shall have occurred but without prejudice to any payments otherwise due in respect of the Executive's death. 4 10. Effect of Disability a. In the event of the Disability of the Executive during the Period of Employment, the Executive shall be entitled to an amount equal to the base or fixed salary provided for in paragraph 5(a)(i) above, at the rate being paid at the time of the commencement of Disability, for the period of such Disability but not in excess of twelve (12) months from the end of the period that establishes such Disability, as described in paragraph 10(c) below. b. The amount of any payments due under paragraph 10(a) shall be reduced by any payments to which the Executive may be entitled for the same period because of disability under any disability or pension plan of I T or of any division, subsidiary, or affiliate thereof, or as the result of workers' compensation or non-occupational disability payments. c. The term "Disability", as used in this Agreement, shall mean an illness or accident occurring during the Period of Employment which prevents the Executive from performing Executive's duties under this Agreement for a period of six (6) consecutive months. The Period of Employment shall be deemed to have ended as of the close of business on the last day of such six (6) month period but without prejudice to any payments due the Executive in respect of disability under paragraph 10(a) or otherwise due to Executive or Executive's legal representative or beneficiary. 11. Provision of Severance Allowance a. In the event of termination of the employment of the Executive by I T during the Period of Employment for any reason other than for Cause, as defined in paragraph 11(c) below, I T shall pay the Executive a severance allowance commencing on the last day of each month following termination of Executive's employment and continuing on the last day of each month thereafter for a period of twelve (12) consecutive months. Such severance allowance shall be an amount equal to the fixed or base salary of the Executive at the time of the termination of Executive's employment plus a pro rata amount based upon Executive's last preceding Management Incentive Compensation award. The Board of Directors, upon the recommendation of the Compensation Committee, may extend the period of severance. In addition to the foregoing, Executive shall be entitled to a lump-sum payment of $10,000 upon the termination of Executive's employment. b. During the period that the payments provided for in paragraph 11(a) are required to be made, the Executive, Executive's dependents, and beneficiaries shall continue 5 to be entitled to benefits and perquisites (excepting any incentive compensation or future grants of stock options or service credit for benefits under the pension program of I T) to the same extent as if the Executive were still employed during such period. If and to the extent that such benefits shall not be payable under any such plan by reason of the Executive's no longer being an employee of I T, I T shall itself pay or provide for payment of such benefits to the Executive, Executive's dependents and beneficiaries. c. For the purpose of paragraph 11(a) above and any other provision of this Agreement, termination of the Executive's employment shall be deemed to have been for Cause only i) if termination of Executive's employment shall have been the result of an act or acts of fraud, theft or embezzlement on the part of the Executive which, if convicted, would constitute a felony and which results or which is intended to result directly or indirectly in gain or personal enrichment of Executive at the expense of I T, or ii) if the Executive shall breach the provisions set forth in the Memorandum of Employment between Executive and I T, or iii) if termination of Executive's employment results from Executive's unreasonable neglect or refusal of Executive to perform the duties appropriate to Executive's position and Executive has been given written notice by the Board of Directors of I T or an authorized committee thereof with respect to such neglect or refusal and Executive continues to unreasonably refuse or neglect the performance of the duties specified, or iv) if there has been a breach by the Executive during the Period of Employment of the provisions of paragraph 4 above, relating to the time to be devoted to the affairs of I T, and with respect to any alleged breach of paragraph 4 hereof, the Executive shall have substantially failed to remedy such alleged breach within thirty (30) days from Executive's receipt of written notice from the Secretary of I T pursuant to resolution duly adopted by the Board of Directors of I T or an authorized committee thereof after notice to the Executive and an opportunity to be heard demanding that Executive remedy such alleged breach, or shall have failed to take all reasonable steps to that end during such thirty-day period and thereafter. 6 d. During the period that Executive accepts the severance allowance provided herein, Executive agrees not to directly recruit or solicit any employee of I T or actively participate in the solicitation of any employee of I T. e. In order to obtain the severance allowance provided for in this Article, Executive shall submit a Request for Severance identical to Exhibit A hereof. I T shall have no obligation to pay any severance allowance unless and until Executive shall have submitted the Request for Severance. f. The acceptance of the aforementioned payments by Executive shall constitute the exclusive remedy of Executive with respect to any claim Executive may have against I T for termination of the employment of Executive or I T's breach of this Agreement. 12. No Trust Created Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust fund of any kind. Any funds which may be set aside or provided for in this Agreement shall continue for all purposes to be a part of the general funds of I T and no person other than I T shall by virtue of the provisions of this Agreement have any interest in such funds. To the extent that any person acquires a right to receive payments from I T under this Agreement, such right shall be no greater than the right of any unsecured general creditor of I T. 13. Successor In Interest This Agreement and the rights and obligations hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, and shall also bind and inure to the benefit of any successor of I T by merger or consolidation or any purchaser or assignee of all or substantially all of its assets, but, except to any such successor, purchaser or assignee of I T, neither this Agreement nor any rights or benefits hereunder may be assigned by either party hereto. 14. Invalid Provision In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law. 7 15. Arbitration of Disputes The parties agree that any controversy or claim arising out of or relating to this Agreement, or any dispute arising out of the interpretation or application of this Agreement, which the parties hereto are unable to resolve, shall be finally resolved and settled exclusively by arbitration in San Antonio, Texas by a single arbitrator under the American Arbitration Association's Commercial Arbitration Rules then obtaining and in accordance with the substantive laws of the State of Texas. If the parties cannot agree upon an arbitrator out of the panel for the sole purpose of selecting an arbitrator, then each party shall choose its own independent representative and those independent representatives shall in turn choose the single arbitrator within thirty (30) days of the date of the selection of the first independent representative. The parties severally recognize and consent to the jurisdiction over each of them by the Courts of the State of Texas. The legal expenses of Executive shall be reimbursed to Executive if an award is rendered in favor of Executive or if the arbitrator finds that Executive exercised good faith in demanding arbitration of any such dispute. 16. Governing Laws This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Texas applicable to agreements made and to be performed entirely in Texas. 17. Entire Agreement This Agreement shall constitute the entire agreement between the parties superseding all prior agreements, and may not be modified or amended and no waiver shall be effective unless by written document signed by both parties hereto; provided, however,that any increase in base salary, as provided in paragraph 5 hereof shall become an amendment to this Agreement when approved by the Compensation Committee of the Board of Directors of I T and recorded in the approved minutes of such meeting. This Agreement shall become effective as of the date of Confirmation of the reorganization plan of I T and at such time shall supersede the Agreement of January 27, 1986, as amended on July 31, 1992 and June 1, 1994. Executed as of the 1st day of December, 1994. INTELOGIC TRACE, INC. PHILIP D. FREEMAN By: MARK S. HELWEGE Philip D. Freeman "Executive" 8 EX-10.35 7 LOAN AND SECURITY AGREEMENT EXHIBIT 10.35 LOAN AND SECURITY AGREEMENT between FIDELITY CAPITAL & INCOME FUND as Lender and INTELOGIC TRACE, INC. as Borrower As of December 8, 1994 TABLE OF CONTENTS PAGE ---- 1. DEFINITIONS AND CONSTRUCTION......................................... 1 1.1 Definitions. .............................................. 1 1.2 Accounting Terms. .......................................... 11 1.3 Construction. .............................................. 11 1.4 Exhibits.................................................... 11 2. LOAN AND TERMS OF PAYMENT............................................ 11 2.1 Loan........................................................ 11 2.2 Overadvance................................................. 12 2.3 Mandatory Prepayment........................................ 12 2.4 Optional Prepayment......................................... 13 2.5 Interest Rates, Payments and Calculations................... 13 2.6 Crediting Payments.......................................... 15 2.7 Fees........................................................ 15 2.8 Use of Proceeds............................................. 16 3. TERM; CONDITIONS PRECEDENT........................................... 16 3.1 Conditions Precedent........................................ 16 4. CREATION OF SECURITY INTEREST........................................ 18 4.1 Grant of Security Interest.................................. 18 4.2 Negotiable Collateral....................................... 18 4.3 Collection of Accounts, General Intangibles, Negotiable Collateral..................................... 18 4.4 Delivery of Additional Documentation Required............... 19 4.5 Power of Attorney........................................... 19 4.6 Right to Inspect............................................ 20 4.7 No Assumption............................................... 20 5. REPRESENTATIONS AND WARRANTIES....................................... 20 5.1 Corporate Existence; Compliance with Law.................... 21 5.2 Due Authorization; No Conflict.............................. 21 5.3 No Prior Encumbrances....................................... 21 5.4 Bona Fide Accounts.......................................... 21 5.5 Condition of Inventory...................................... 22 5.6 Location of Inventory and Equipment......................... 22 5.7 Inventory Records........................................... 22 5.8 Location of Borrower's Executive Offices.................... 22 5.9 Litigation.................................................. 22 5.10 No Material Adverse Change in Financial Statements................................................ 23 i 5.11 Solvency.................................................... 23 5.12 ERISA....................................................... 23 5.13 Environmental Condition..................................... 23 5.14 Margin Regulations.......................................... 24 5.15 Reliance by Lender; Cumulative.............................. 24 5.16 Bankruptcy Matters.......................................... 25 6. AFFIRMATIVE COVENANTS................................................ 25 6.1 Accounting System........................................... 25 6.2 Cash Flow, Balance Sheet and Income Statement Reports................................................... 25 6.3 Assignments of Accounts..................................... 25 6.4 SEC Filings; Reports; Certificates.......................... 25 6.5 Title to Equipment.......................................... 26 6.6 Maintenance of Equipment.................................... 27 6.7 Taxes....................................................... 27 6.8 Insurance................................................... 27 6.9 Lender Expenses............................................. 28 6.10 Foothill Documents.......................................... 28 6.11 No Setoffs or Counterclaims................................. 28 7. NEGATIVE COVENANTS................................................... 28 7.1 Extraordinary Transactions and Disposal of Assets.................................................... 28 7.2 Liens....................................................... 29 7.3 Change Name................................................. 29 7.4 Merge, Acquire.............................................. 29 7.5 Guarantee................................................... 29 7.6 Restructure................................................. 30 7.7 Prepayments................................................. 30 7.8 Amend Foothill Loan..........................................30 7.9 Change of Ownership......................................... 30 7.10 Consignments................................................ 30 7.11 Distributions............................................... 30 7.12 Accounting Methods.......................................... 30 7.13 Investments................................................. 30 7.14 Transactions with Affiliates................................ 31 7.15 Suspension.................................................. 31 7.16 Indebtedness.................................................31 8. EVENTS OF DEFAULT.................................................... 31 9. LENDER'S RIGHTS AND REMEDIES......................................... 35 9.1 Rights and Remedies......................................... 35 9.2 Remedies Cumulative......................................... 37 10. TAXES AND EXPENSES REGARDING THE COLLATERAL.......................... 37 ii 11. GOVERNING LAW; WAIVERS; AMENDMENTS; INDEMNIFICATION.................. 38 11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver......................................... 38 11.2 Waiver of Notices........................................... 40 11.3 Amendments and Waivers...................................... 40 11.4 Waiver of Counterclaims..................................... 40 11.5 Indemnification............................................. 41 12. NOTICES.............................................................. 41 13. DESTRUCTION OF BORROWER'S DOCUMENTS.................................. 42 14. GENERAL PROVISIONS................................................... 43 14.1 Effectiveness............................................... 43 14.2 Successors and Assigns...................................... 43 14.3 Section Headings............................................ 43 14.4 Interpretation.............................................. 43 14.5 Final Agreement of the Parties.............................. 43 14.6 Severability of Provisions.................................. 44 14.7 Counterparts................................................ 44 14.8 Revival and Reinstatement of Obligations.....................44 15. TERMINATION.......................................................... 44 iii SCHEDULES Schedule 5.6 -- Inventory and Equipment Locations Schedule 5.9 -- Litigation Schedule 5.12 -- ERISA Schedule 7.5 -- Guarantees Schedule 7.13 -- Investments Schedule 7.16 -- Indebtedness EXHIBITS Exhibit A -- Form of Note Exhibit B -- Form of Intercreditor Agreement Exhibit C -- Form of Foothill Loan iv LOAN AND SECURITY AGREEMENT dated as of December 8, 1994 between FIDELITY CAPITAL & INCOME FUND, a Massachusetts business trust ("Lender"), with a place of business located at 82 Devonshire Street - F7D, Boston, Massachusetts 02109, and INTELOGIC TRACE, INC., a New York corporation ("Borrower"), with its chief executive office located at Turtle Creek Tower I, P.O. Box 400044, San Antonio, Texas 78229-8415. The parties agree as follows: 1. DEFINITIONS AND CONSTRUCTION 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following definitions: "ACCOUNTS" means any "account," as such term is defined in section 9-106 of the UCC and, in any event, shall include, without limitation, all accounts receivable, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, Documents or Instruments) including, without limitation, under any trade names, styles or divisions thereof, whether arising out of goods sold or services rendered by Borrower or from any other transaction, whether or not the same involves the sale of goods or services by Borrower (including, without limitation, any such obligation that might be characterized as an account or contract right under the UCC) and all of Borrower's rights in, to and under all purchase orders or receipts for goods or services, and all of Borrower's rights to any goods represented by any of the foregoing (including, without limitation, unpaid seller's rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), and all moneys due or to become due to Borrower under all contracts for the sale of goods or the performance of services or both by Borrower (whether or not yet earned by performance on the part of Borrower or in connection with any other transaction) including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and all collateral security and guarantees of any kind given by any person with respect to any of the foregoing. "AGREEMENT" shall mean this Loan and Security Agreement and any extensions, riders, supplements, notes, amendments or modifications to or in connection with this Loan and Security Agreement. "BORROWER" shall have the meaning set forth in the preamble to this Agreement. "BORROWER'S BOOKS" shall mean all of Borrower's books and records including ledgers, records indicating, summarizing or evidencing Borrower's assets or liabilities, or the Collateral, all information relating to Borrower's business operations or financial condition, and all computer programs, disc or tape files, printouts, runs or other computer prepared information relating to Borrower's business operations or financial condition, and the equipment containing such information. "BUSINESS DAY" shall mean any day which is not a Saturday, Sunday or other day on which banks in the State of Texas or the Commonwealth of Massachusetts are authorized or required to close. "CASH" shall mean cash or cash equivalents. "CHANGE OF CONTROL" shall be deemed to have occurred at such times as a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than a stockholder as of the date hereof or pursuant to the Plan of Reorganization, becomes the "beneficial owner" (as defined under Rule 13d-3 under the Exchange Act), directly or indirectly, of more than fifty percent (50%) of the total voting power of all classes of stock then outstanding of Borrower normally entitled to vote in elections of directors. "CHATTEL PAPER" shall mean any "chattel paper," as such term is defined in section 9-105(1)(b) of the UCC. "COLLATERAL" shall mean the following property and interests in property of Borrower, whether now owned or hereafter acquired: all Accounts, Chattel Paper, Contracts, Documents, Equipment, General Intangibles, Instruments, Intellectual Property Collateral, Inventory, Cash, Securities, Fixtures and all other goods and personal property of Borrower whether tangible or intangible or whether now owned or hereafter acquired by Borrower and wherever located, and to the extent not otherwise included, all Proceeds of each of the foregoing and all accessions to, 2 substitutions and replacements for, and rents, profits and products of each of the foregoing. "CONTRACTS" shall mean all contracts, undertakings or other agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which Borrower may now own or hereafter have any right, title or interest, including, without limitation, with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof. "COPYRIGHTS" shall mean (i) all copyrights, registrations and applications therefor, (ii) all renewals and extensions thereof, (iii) all income, royalties, damages and payments now and hereafter due or payable or both with respect thereto, including, without limitation, damages and payments for past or future infringements or misappropriations thereof, (iv) all rights to sue for past, present and future infringements or misappropriations thereof, and (v) all other rights corresponding thereto throughout the world. "DEFAULT RATE" shall have the meaning set forth in Section 2.5(b) hereof. "DERIVATIVE SETTLEMENT" shall mean any amounts (less attorneys' fees and expenses in an aggregate amount not to exceed $800,000) received by Borrower pursuant to the settlement agreement reached on May 13, 1994 with respect to shareholder litigation against Borrower and its board of directors relating to Borrower's purchases of shares of capital stock of the Borrower and Datapoint Corporation in 1990. "DOCUMENTS" shall mean any "documents," as such term is defined in section 9-105(1)(f) of the UCC. "DOLLARS" and the sign "$" each means the lawful money of the United States. "EFFECTIVE DATE" shall mean the "Effective Date" as defined in the Plan of Reorganization. "EQUIPMENT" shall mean any "equipment," as such term is defined in section 9-109(2) of the UCC and, in any event, shall include, without limitation, all machinery, equipment, furnishings, fixtures, vehicles and computers and 3 other electronic data-processing and other office equipment and any and all additions, substitutions and replacements of any of the foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or affixed thereto. "ERISA" shall mean the Employment Retirement Income Security Act of 1974, as amended, and the regulations thereunder. "ERISA AFFILIATE" shall mean each trade or business (whether or not incorporated and whether or not foreign) which is or may hereafter become a member of a group of which Borrower is a member and which is treated as a single employer under ERISA Section 4001(b)(1), or IRC Section 414. "EXCHANGE ACT" shall mean the Securities and Exchange Act of 1934, as amended, and the rules and regulations thereunder. "FIELD SUPPORT SPARES" shall mean any and all spare parts, components, top assemblies, subassemblies and similar items used by Borrower to maintain or repair customer equipment. "FIXTURES" shall mean any "fixtures" as such term is defined in section 9-313(1)(a) of the UCC. "FOOTHILL" shall mean Foothill Capital Corporation, a California corporation. "FOOTHILL LOAN" shall mean the Amended and Restated General Loan and Security Agreement dated as of December 8, 1994, between Foothill and Borrower, as amended from time to time in the form of Exhibit C hereto. "FOOTHILL OVERADVANCE" shall mean an overadvance of up to One Million Dollars ($1,000,000) by Foothill to Borrower in accordance with the terms and provisions set forth in the Foothill Loan. "GAAP" shall mean generally accepted accounting principles as in effect from time to time. "GENERAL INTANGIBLES" shall mean any "general intangibles," as such term is defined in section 9-106 of the 4 UCC and, in any event, shall include, without limitation, all right, title and interest that Borrower may now or hereafter have in or under the IRS Refund, any other state or local refunds of taxes, excises or similar charges, any Contract, all customer lists, Copyrights, Trademarks, Patents, rights in intellectual property, Licenses, permits, trade secrets, proprietary or confidential information, inventions (whether patented or patentable or not), and technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill and rights of indemnification. "GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "INSOLVENCY PROCEEDING" shall mean any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including general assignments for the benefit of creditors, formal or informal moratoria, compositions, extension generally with its creditors, or proceedings seeking reorganization, arrangement, or other relief. "INSTRUMENTS" shall mean any "instrument," as such term is defined in section 9-105(1)(i) of the UCC, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper. "INTELLECTUAL PROPERTY COLLATERAL" shall mean all Copyrights, Licenses, Patents, Trademarks and Trade Secrets as to which Lender has been granted a security interest hereunder. "INVENTORY" shall mean any "inventory," as such term is defined in section 9-109(4) of the UCC and, in any event, shall include, without limitation, all inventory, merchandise, goods and other personal property that are held for sale or lease or are furnished or are to be furnished under a contract of service or that constitute raw materials, work in process or materials used or consumed or to be used or consumed in Borrower's business, or the 5 processing, packaging, delivery or shipping of the same, and all finished goods. "IRC" shall mean the Internal Revenue Code of 1986, as amended, and the regulations thereunder. "IRS REFUND" shall mean any refund of federal income taxes claimed or received by Borrower from the Internal Revenue Service. "INTERCREDITOR AGREEMENT" shall mean the intercreditor agreement dated as of the date hereof, between Lender and Foothill, substantially in the form of Exhibit B hereto. "LENDER EXPENSES" shall mean all costs and expenses (including taxes, photocopying, notarization, telecommunication and insurance premiums) which are paid or advanced by Lender relating to, under or in connection with the Loan Documents; filing, recording, publication, appraisal (including periodic Collateral appraisals) real estate survey, environmental audit and search fees paid or incurred by Lender in connection with Lender's transactions with Borrower; costs and expenses incurred by Lender in the disbursement of funds to Borrower (by wire transfer or otherwise); charges resulting from the dishonor of checks; costs and expenses incurred by Lender to correct any default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale or advertising to sell the Collateral, or any portion thereof, whether or not a sale is consummated; reasonable costs and expenses of examining Borrower's Books; reasonable costs and expenses of third party claims or any suit incurred by Lender in enforcing or defending the Loan Documents; and Lender's reasonable attorneys' fees and expenses incurred in advising, structuring, drafting, reviewing, amending, terminating, enforcing, defending or otherwise concerning the Loan Documents, whether or not suit is brought. "LICENSE" shall mean any Patent License, Trademark License or other license as to which Lender has been granted a security interest hereunder. "LOAN" shall have the meaning set forth in Section 2.1 hereof. 6 "LOAN DOCUMENTS" shall mean this Agreement, the Note, the Intercreditor Agreement and all other agreements, instruments and documents, including, without limitation, security agreements, notes, warrants, guaranties, mortgages, deeds of trust, subordination agreements, pledges, powers of attorney, consents, assignments, collateral assignments, letter agreements, contracts, notices, leases, amendments, financing statements, letter of credit applications and reimbursement agreements, and all other writings heretofore, now or hereafter executed by or on behalf of Borrower and delivered to Lender in connection with or relating to this Agreement, together with all agreements, instruments and documents referred to therein or contemplated thereby. "MATERIAL ADVERSE EFFECT" shall mean, relative to any occurrence of whatever nature (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding) and after taking into account actual insurance coverage and effective indemnification with respect to such occurrence (a) a material adverse effect on the financial condition, business, operations, prospects, or properties of Borrower, (b) the impairment of (i) the ability of Borrower to perform any of its payment or other material obligations under this Agreement or any other Loan Document or (ii) the ability of Lender to enforce any of such obligations or any of its remedies under this Agreement or under any other Loan Document, (c) the occurrence of any Event of Default or (d) the subjection of Lender to any civil or criminal liability. "MAXIMUM LAWFUL RATE" shall mean the maximum lawful nonusurious rate of interest which, under laws in effect and applicable to Lender, is permitted to be charged by Lender to Borrower on the transactions evidenced by this Agreement and the Note, as from time to time in effect, including changes in such maximum lawful rate as of the effective date of such changes. "MULTIEMPLOYER PLAN" shall mean a "multiemployer plan" as defined in ERISA Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees of Borrower or any ERISA Affiliate. "NEGOTIABLE COLLATERAL" shall have the meaning set forth in Section 4.2 hereof. 7 "NOTE" shall mean the note of Borrower dated the date hereof in the aggregate principal amount of Five Million Dollars ($5,000,000), substantially in the form of Exhibit A hereto. "OBLIGATIONS" shall mean the unpaid principal balance of the Loan and any Overadvances, all interest accrued hereunder and all other loans, advances, overadvances, debts, principal, interest, premiums, liabilities, obligations, fees (including early termination fees), lease payments, guaranties, covenants and duties owing by Borrower to Lender, whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and further including all interest not paid when due and all Lender Expenses which Borrower is required to pay or reimburse under the Loan Documents, by law or otherwise. "ORDER" shall mean the Final Order entered on November 28, 1994 of the United States Bankruptcy Court for the Western District of Texas, San Antonio Division, confirming the Plan of Reorganization. "OVERADVANCE" shall have the meaning set forth in Section 2.2 hereof. "PATENT LICENSE" shall mean any written agreement granting any right to practice any invention on which a Patent is in existence. "PATENTS" shall mean (i) all patents and patent applications, (ii) all inventions and improvements described and claimed therein, (iii) all reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof, (iv) all income, royalties, damages and payments now and hereafter due and/or payable to such Company with respect thereto, including, without limitation, damages and payments for past or future infringements or misappropriations thereof, (v) all rights to sue for past, present and future infringements or misappropriation thereof, and (vi) all other rights corresponding thereto throughout the world. "PBGC" shall mean the Pension Benefit Guarantee Corporation. 8 "PCS ESCROW AGREEMENT" shall mean the escrow agreement between Borrower and PC Service Source, Inc., referred to in the Master Repair Services and Spare Parts Supply Agreement, dated as of November 17, 1994, between Borrower and PC Service Source, Inc. "PERMITTED LIENS" shall mean: (a) liens and security interests held by Lender: (b) liens for unpaid taxes that are not yet due and payable and (c) liens and security interests of Foothill as permitted in the Intercreditor Agreement. "PLAN" shall mean any plan described in ERISA Section 3(2) maintained for employees of Borrower or any ERISA Affiliate, other than a Multiemployer Plan. "PLAN OF REORGANIZATION" shall mean that certain Modified First Amended Chapter 11 Plan of Intelogic Trace, Inc. dated October 12, 1994, as filed with the United States Bankruptcy Court for the Western District of Texas, San Antonio Division, in Chapter 11 Case No. 94-52172C, as the same may be amended, supplemented or otherwise modified from time to time. "PROCEEDS" shall mean "proceeds," as such term is defined in section 9-306(1) of the UCC and, in any event, shall include, without limitation, (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Borrower from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), (c) any claim of Borrower against third parties (i) for past, present or future infringement of any Patent or Patent License or (ii) for past, present or future infringement or dilution of any Trademark or Trademark License or for injury to the goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License, and (d) any and all other amounts from time to time paid or payable under or in connection with any of the Collateral. "PROHIBITED TRANSACTION" shall mean any transaction described in Section 406 of ERISA which is not 9 exempt by reason of Section 408 of ERISA, and any transaction described in Section 4975(c) of the IRC which is not exempt by reason of section 4975(c)(2) of the IRC. "RELATED ENTITY" shall mean Lender and any other corporation which is at least fifty percent (50%) owned by Lender or any of the foregoing entities. "REPORTABLE EVENT" shall mean a reportable event described in Section 4043 of ERISA or the regulations thereunder, a withdrawal from a Plan described in Section 4063 of ERISA, or a cessation of operations described in Section 4068(f) of ERISA. "SECURITIES" shall mean any "securities" as that term is defined in section 8-102(1)(c) of the UCC or under federal securities law, whether or not such securities are marketable, including Borrower's stock in Datapoint Corporation and Canal Capital Corporation (whether Borrower has legal title or equitable title). "TRADE SECRETS" shall mean trade secrets, along with any and all (i) income, royalties, damages and payments now and hereafter due and/or payable to Borrower with respect thereto, including, without limitation, damages and payments for past or future infringements or misappropriations thereof, (ii) rights to sue for past, present and future infringements or misappropriation thereof, and (iii) all other rights corresponding thereto throughout the world. "TRADEMARK LICENSE" shall mean any written agreement granting any right to use any Trademark or Trademark registration. "TRADEMARKS" shall mean (i) all trademarks (including service marks and trade names, whether registered or at common law), registrations and applications therefor, and the entire product lines and goodwill of Borrower's business connected therewith and symbolized thereby, (ii) all renewals thereof, (iii) all income, royalties, damages and payments now and hereafter due or payable or both with respect thereto, including, without limitation, damages and payments for past or future infringements or misappropriation thereof, (iv) all rights to sue for past, present and future infringements or misappropriation 10 thereof, and (v) all other rights corresponding thereto throughout the world. "UCC" shall mean the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Texas; PROVIDED, HOWEVER, that if, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of Lender's security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of Texas, the term "UCC" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of definitions related to such provisions. 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. When used herein, the term "financial statements" shall include the notes thereto. 1.3 CONSTRUCTION. Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, to the singular include the plural. The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Section, subsection, clause and exhibit references are to this Agreement unless otherwise specified. 1.4 EXHIBITS. All of the exhibits attached to this Agreement shall be deemed incorporated herein by reference. 2. LOAN AND TERMS OF PAYMENT 2.1 LOAN. (a) Upon and subject to the terms and conditions hereof, Lender agrees to make a loan to Borrower on the Effective Date in an aggregate principal amount equal to Five Million Dollars ($5,000,000) (the "Loan"). The Loan shall be evidenced by a promissory note to be executed and delivered by Borrower at the time of such Loan, the form of which is attached hereto and made a part hereof as Exhibit A (the "Note"). 11 (b) The Loan shall be made on notice, given not later than 1:00 P.M. (New York City time) on the second Business Day prior to the Effective Date, by Borrower to Lender. On the Effective Date, upon fulfillment of the applicable conditions set forth in Section 3, Lender shall wire to a bank designated by Borrower and reasonably acceptable to Lender, the amount of the Loan. 2.2 OVERADVANCE. Following the Effective Date, Lender (i) may, but shall not be obligated to, make one or more additional advances to Borrower from the funds applied to repay the Loan in accordance with Section 2.3, in an aggregate principal amount not to exceed One Million Dollars ($1,000,000), subject to such terms and conditions as shall be agreed upon by Lender and Borrower and (ii) to the extent obligated pursuant to the Intercreditor Agreement shall make one or more additional advances to Borrower to make funds available to repay the Foothill Overadvance in accordance with Lender's obligations under the Intercreditor Agreement (each, an "Overadvance"). In the event Lender makes any such Overadvance to Borrower, the amount of such Overadvance shall be added to the principal amount of, and shall be deemed to be a part of, the Loan and shall be subject to the terms and conditions of this Agreement, including the interest rate and repayment terms, applicable to the Loan. 2.3 MANDATORY PREPAYMENT. (a) All proceeds realized from any sale, transfer or other disposition of the Borrower's Inventory (including any amounts received by Borrower in respect of the PCS Escrow Agreement, but subject to the prior repayment of the Foothill Overadvance, in accordance with the terms and conditions set forth in the Foothill Loan and the Intercreditor Agreement) and Securities, and all amounts received by Borrower in respect of the IRS Refund or the Derivative Settlement shall immediately upon receipt thereof, be applied by Borrower first, to pay all accrued and unpaid interest and all fees and expenses payable hereunder, and second to prepay the principal balance of the Loan. (b) No prepayment fee shall be payable in respect of any mandatory prepayment under this Section 2.3. (c) Amounts paid pursuant to this Section 2.3 may not be re-borrowed. 12 2.4 OPTIONAL PREPAYMENT. (a) Borrower shall have the right at any time, upon at least two (2) Business Days' prior notice to Lender, stating the proposed date and aggregate principal amount of the prepayment, to prepay the outstanding principal amount of the Loan in whole or in part, together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, however, that each partial prepayment shall be in an aggregate principal amount not less than Five Hundred Thousand Dollars ($500,000) or integral multiples of One Hundred Thousand Dollars ($100,000) in excess thereof. Upon the giving of such notice of prepayment, the principal amount of the Loan specified to be prepaid shall become due and payable on the date specified for each such prepayment. (b) No prepayment fee shall be payable in respect of any optional prepayment under this Section 2.4. (c) Amounts paid pursuant to this Section 2.4 may not be re-borrowed. 2.5 INTEREST RATES, PAYMENTS AND CALCULATIONS. (a) INTEREST RATE. Subject to Section 2.5(b), the outstanding principal amount of the Loan shall bear interest at a rate equal to the lesser of (i) the Maximum Lawful Rate and (ii) fifteen percent (15%) per annum. (b) DEFAULT RATE. From and after the occurrence of an Event of Default the outstanding principal amount of the Loan shall bear interest at a rate equal to the lesser of (i) the Maximum Lawful Rate and (ii) seventeen percent (17%) per annum. (c) PAYMENTS. Interest hereunder shall be due and payable on the first Business Day of each calendar month during the term hereof. Any interest not paid when due, together with all or any portion of the other Obligations, shall, to the fullest extent permitted by law, accrue interest at the Default Rate payable on demand. All interest shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. (d) ALTERNATIVE INTEREST RATE. Notwithstanding the provisions of Sections 2.5(a) and (b), if at any time the applicable interest rate shall exceed the 13 Maximum Lawful Rate and thereafter the applicable interest rate shall become less than the Maximum Lawful Rate, the rate of Interest payable hereunder shall, at the option of Lender, be the Maximum Lawful Rate until the total interest paid by Borrower equals the amount which would have been paid but for the applicable interest rate having been in excess of the Maximum Lawful Rate. If at maturity or final payment of the Obligations the total amount of interest paid or accrued on the Obligations under the provisions of Sections 2.5 (a) and (b) is less than the total amount of interest which would have accrued if the applicable interest rate had at all times been in effect, then Borrower to the fullest extent permitted by law, shall pay to Lender an amount equal to the difference between (a) the amount of interest which would have accrued on the Obligations if the Maximum Lawful Rate had at all times been in effect, and (b) the amount of interest accrued in accordance with the provisions of Sections 2.5(a) and (b). (e) INTEREST SAVINGS. It is the intention of the parties hereto to conform strictly to all usury laws applicable to this transaction. Accordingly, if the transactions contemplated hereby would be usurious under applicable law (including the laws of the United States of America or any jurisdiction whose laws may be mandatorily applicable notwithstanding the other provisions of this Agreement), then, notwithstanding anything to the contrary in this Agreement or in any other instrument or agreement entered into in connection herewith, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, taken, reserved, charged, or received under this Agreement or under any other instruments or agreements or otherwise in connection herewith shall under no circumstances exceed the maximum amount allowed by such applicable law, and any excess shall be credited on the principal amount of the Obligations (or, if the principal amount of the Obligations shall have been paid in full, refunded to Borrower); and (ii) in the event that the maturity of the Obligations is accelerated for any reason under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under applicable law may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be cancelled automatically as of the date of such acceleration or prepayment and, if 14 theretofore paid, shall be credited on the principal amount of the Obligations (or, if the principal amount of the Obligations shall have been repaid in full, refunded to Borrower). In determining whether or not the interest paid or payable with respect to any indebtedness of Borrower to Lender, under any specific contingency, exceeds the Maximum Lawful Rate, Borrower and Lender shall, to the maximum extent permitted by applicable law, (i) characterize any non-principal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, (iii) amortize, prorate, allocate and spread the total amount of interest throughout the full term of such indebtedness so that the actual rate of interest on account of such indebtedness does not exceed the maximum amount permitted by applicable law and/or (iv) allocate interest between portions of such indebtedness, so that no such portion shall bear interest at a rate greater than that permitted by applicable law. 2.6 CREDITING PAYMENTS. Borrower shall make all payments hereunder by wire transfer to Lender at The Bank of New York, ABA# 021-000-018, Account # 114669, with the notation "Transaction Description: Intelogic Trace Exit Loan, or by such other method as may be substituted by notice given as herein provided. The receipt by Lender of any funds in payment of the Obligations shall be immediately applied to conditionally reduce the Obligations, but shall not be considered a payment on account unless such wire transfer is of immediately available federal funds and is made to the appropriate deposit account of Lender. For interest calculation purposes, the receipt of wire transfer or other item of payment by Lender shall be deemed to have been paid to Lender two (2) Business Days after the date Lender actually receives such wire transfer of immediately available federal funds. Notwithstanding anything to the contrary contained herein, any wire transfer or other payment received by Lender after 11:00 a.m. New York time shall be deemed to have been received by Lender as of the opening of business on the immediately following Business Day. 2.7 FEES. In consideration of Lender's agreement to make available to Borrower the advances and loans provided for herein, Borrower shall pay to Lender a fee (the "Closing Fee") consisting of 6,667 shares of the Borrower's 10% Preferred Stock to be issued on or promptly following 15 the Effective Date. The Closing Fee shall be fully earned at the time of payment and non-refundable. 2.8 USE OF PROCEEDS. The proceeds of the Loan made on the Effective Date shall be used as follows: (a) up to Four Million Dollars ($4,000,000) shall be applied to repay the overadvance on Borrower's indebtedness to Foothill outstanding immediately prior to the Effective Date; and (b) the remaining proceeds shall be used for general corporate purposes or to pay claims of creditors and expenses incurred by Borrower in connection with the Plan of Reorganization. 3. CONDITIONS PRECEDENT 3.1 CONDITIONS PRECEDENT. Each of the following is a condition precedent to Lender making the Loan hereunder: (a) NOTE. Lender shall have received the Note to the order of Lender duly executed by Borrower. (b) INTERCREDITOR AGREEMENT. Lender shall have received the Intercreditor Agreement duly executed by Foothill and Borrower. (c) FOOTHILL LOAN. Foothill and Borrower shall have duly executed the Foothill Loan. (d) NO MODIFICATION TO THE PLAN OF REORGANIZATION. The terms of the Plan of Reorganization shall not have been modified in any manner adverse to Lender without the prior written consent of Lender. All conditions to the consummation of the Plan of Reorganization set forth in Article VIII thereof shall have been satisfied and shall have been completed prior to, or simultaneously with, the Effective Date. (e) BORROWER CERTIFICATE. Lender shall have received a certificate of Borrower dated the Effective Date, in form and substance satisfactory to Lender, executed by the President or any Vice President and the Secretary or any Assistant Secretary of Borrower, certifying that the 16 representations and warranties made by Borrower in each of the Loan Documents are true and correct on and as of the date hereof and after giving effect to the Loan required to be made pursuant hereto. (f) CORPORATE PROCEEDINGS OF BORROWER. Lender shall have received a copy of the resolutions, in form and substance satisfactory to Lender, of the Board of Directors of Borrower authorizing (i) the execution, delivery and performance of this Agreement and the other Loan Documents, (ii) the borrowings contemplated hereunder and (iii) the granting by it of the liens created pursuant to this Agreement and the other Loan Documents, certified by the Secretary or an Assistant Secretary of Borrower as of the Effective Date, which certificate shall state that the resolutions thereby certified have not been amended, modified or revoked. (g) BORROWER INCUMBENCY CERTIFICATE. Lender shall have received a certificate of Borrower dated the Effective Date, in form and substance satisfactory to Lender, as to the incumbency and signature of the officers of Borrower executing any Loan Document, executed by the President or any Vice President and the Secretary or any Assistant Secretary of Borrower. (h) CORPORATE DOCUMENTS. Lender shall have received true and complete copies of the Certificate of Incorporation and By-Laws of Borrower, certified as of the Effective Date as complete and correct copies thereof by the Secretary or an Assistant Secretary of Borrower. (i) FEDERAL RESERVE FORM G-3. A true and accurate Federal Reserve Form G-3 dated as of the date hereof shall have been executed and delivered by Borrower to Lender. (j) ASSIGNMENT OF PCS ESCROW AGREEMENT. Lender shall have received, in form and substance satisfactory to Lender, an assignment of the PCS Escrow Agreement, duly executed by Borrower and by PCS. (k) INSURANCE ENDORSEMENT. Lender shall have received evidence satisfactory to Lender that the insurance policies provided for in Section 6.8 hereof are in full force and effect, certified by the insurer thereof, 17 together with appropriate evidence showing a loss payable clause in favor of Lender. (l) LIEN SEARCHES. Lender shall be satisfied that the results of the lien searches (which shall be performed at Borrower's expense) shall not indicate any liens on the Collateral other than as created pursuant to this Agreement, the other Loan Documents or as permitted by the Intercreditor Agreement. (m) ACTIONS TO PERFECT LIENS. The Borrower shall execute all filings, recordings, registrations and perform all other actions, including, without limitation, executing financing statements on form UCC-1, necessary or, in the reasonable opinion of Lender, desirable to perfect the liens created by this Agreement. 4. CREATION OF SECURITY INTEREST 4.1 GRANT OF SECURITY INTEREST. As security for the prompt and complete payment and performance when due of all the Obligations and to induce Lender to enter into the Loan Documents and to make the Loan in accordance with the terms hereof, Borrower hereby assigns, conveys, mortgages, pledges, hypothecates and transfers to Lender, and hereby grants to Lender a security interest in, all presently existing and hereafter arising Collateral. 4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral, including proceeds thereof, is evidenced by or consists of letters of credit, notes, drafts, instruments, documents, leases or chattel paper ("Negotiable Collateral"), Borrower shall, immediately upon the request of Lender, endorse and assign such Negotiable Collateral to Lender and deliver physical possession of such Negotiable Collateral to Lender. 4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, NEGOTIABLE COLLATERAL. Lender or Lender's designee may, at such time as either an Event of Default has occurred or Lender reasonably determines that a material impairment of the prospect of repayment of any portion of the Obligations or of the value or priority of Lender's security interest in the Collateral has occurred or is imminently likely to occur, (a) notify customers or account debtors of Borrower that the Accounts, General Intangibles and Negotiable 18 Collateral have been assigned to Lender or that Lender has a security interest therein; (b) require Borrower to establish a lockbox or other restricted account satisfactory to Lender for the collection of Accounts, General Intangibles or Negotiable Collateral; and (c) collect the Accounts, General Intangibles and Negotiable Collateral directly, but, unless and until Lender does so or gives Borrower other written instructions, Borrower shall collect all Accounts, General Intangibles and Negotiable Collateral for Lender, receive in trust all payments thereon as Lender's trustee, and immediately deliver said payments to Lender in their original form as received from the account debtor. 4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall execute and deliver to Lender, prior to or concurrently with Borrower's execution and delivery of this Agreement and at any time thereafter at the request of Lender, all financing statements, continuation financing statements, fixture filings, security agreements, chattel mortgages, pledges, assignments, endorsements of certificates of title, applications for title, affidavits, reports, notices, schedules of accounts, letters of authority and all other documents that Lender may reasonably request, in form satisfactory to Lender, to perfect and continue perfected Lender's security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. 4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes, constitutes and appoints Lender (and any authorized signatory of Lender) as Borrower's true and lawful attorney in fact, with power to: (a) sign the name of Borrower on any of the documents described in Section 4.4 or on any other similar documents to be executed, recorded or filed in order to perfect or continue perfected Lender's security interest in the Collateral; (b) send requests for verification of Accounts; (c) at such time as an Event of Default has occurred and is continuing, sign Borrower's name on any invoice or bill of lading relating to any Account, drafts against account debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to account debtors; (d) at such time as an Event of Default has occurred and is continuing, endorse Borrower's name on any checks, notices, acceptances, money orders, drafts or other forms of payment or security that may come into Lender's possession; (e) at such time as an Event of Default has occurred and is continuing, notify the post office 19 authorities to change the address for delivery of Borrower's mail to an address designated by Lender, to receive and open all mail addressed to Borrower, and to retain all mail relating to the Collateral and promptly forward all other mail as well as copies of any mail retained to Borrower; (f) at such time as an Event of Default has occurred and is continuing, make, settle, and adjust all claims under Borrower's policies of insurance and make all determinations and decisions with respect to such policies of insurance; and (g) at such time as an Event of Default has occurred and is continuing, settle and adjust disputes and claims respecting the Accounts directly with account debtors, for amounts and upon terms which Lender determines to be reasonable, and Lender may cause to be executed and delivered any documents and releases which Lender determines to be necessary. The appointment of Lender as Borrower's attorney in fact, and each and every one of Lender's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Lender's obligation to provide advances hereunder is terminated. 4.6 RIGHT TO INSPECT. Lender (through any of its officers, employees or agents) shall have the right, from time to time hereafter upon reasonable prior notice during Borrower's usual business hours, or during the usual business hours of any third party having control over the records of Borrower, to inspect Borrower's Books and to check, test and appraise the Collateral in order to verify Borrower's financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral. 4.7 NO ASSUMPTION. Nothing contained herein or in any of the Loan Documents nor any grant of a security interest in the Collateral to Lender or otherwise shall constitute or be deemed an assumption by Lender of any liability or obligation under any agreement, contract or obligation of Borrower. 5. REPRESENTATIONS AND WARRANTIES To induce Lender to make the Loan as herein provided for, Borrower makes the following representations and warranties to Lender, each and all of which shall be true and correct as of the date of (i) execution and 20 delivery of this Agreement or (ii) the making by Lender of any Overadvance, and shall survive the execution and delivery of this Agreement: 5.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Borrower (i) is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation; (ii) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification (except for jurisdictions in which such failure to so qualify or to be in good standing would not have a Material Adverse Effect); (iii) has the requisite corporate power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease, and to conduct its business as now, heretofore and proposed to be conducted; (iv) has all material licenses, permits, consents or approvals from or by, and has made all material filings with, and has given all material notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (v) is in compliance with its Certificate of Incorporation and ByLaws; and (vi) is in compliance with all applicable provisions of law where the failure to comply would have a Material Adverse Effect. 5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery and performance of the Loan Documents are within Borrower's corporate powers, have been duly authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower's Certificate of Incorporation or By-laws, nor will they constitute an Event of Default under any material agreement to which Borrower is now or may hereafter become a party. 5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title to the Collateral, free and clear of liens, claims, security interests or encumbrances (except for liens in favor of Foothill, subject to the Intercreditor Agreement). 5.4 BONA FIDE ACCOUNTS. The Accounts are, and at all times, hereafter shall be, bona fide existing obligations created by the sale and delivery of Inventory or the rendition of services to account debtors in the ordinary 21 course of Borrower's business, and to the best of Borrower's knowledge are unconditionally owed to Borrower without defenses, disputes, offsets, counterclaims or rights of return or cancellation. The property or services giving rise to such Accounts has been delivered to or performed for the account debtor, or to the account debtor's agent for immediate shipment to and unconditional acceptance by the account debtor. Except as disclosed to Lender in writing, Borrower has not, and at all times hereafter, shall not have, received notice of actual or imminent bankruptcy, insolvency or material adverse change in the financial condition of any account debtor at the time an Account due from such account debtor is assigned to Foothill. 5.5 CONDITION OF INVENTORY. Except Field Support Spares under repair in the normal course of Borrower's business, all Inventory is now and at all times hereafter shall be of good and marketable title and quality. 5.6 LOCATION OF INVENTORY AND EQUIPMENT. Except for the items being repaired in the ordinary course of business, the Inventory and Equipment is not now and shall not at any time hereafter be stored with a bailee, warehouseman or similar party without Lender's prior written consent which such consent shall not be unreasonably delayed or withheld. Borrower shall keep the Inventory and Equipment only at the locations set forth on Schedule 5.6 hereto. 5.7 INVENTORY RECORDS. Borrower now keeps, and hereafter at all times shall keep, correct and accurate records itemizing and describing the kind, type, quality and quantity of the Inventory, and Borrower's cost therefor. 5.8 LOCATION OF BORROWER'S EXECUTIVE OFFICES. The current location of Borrower's executive offices and Borrower's Books is at the address indicated in the first paragraph of this Agreement and Borrower covenants and agrees that it will not, without thirty (30) days prior written notification to Lender, relocate its executive offices. 5.9 LITIGATION. Except as disclosed on Schedule 5.9 hereto, there are no actions or proceedings pending by or against Borrower before any court or administrative agency and Borrower does not have knowledge of any pending or threatened litigation, formal governmental investiga- 22 tions, or filed claims, complaints, actions or prosecutions involving Borrower or any guarantor of the Obligations, except for ongoing collection matters in which Borrower is the plaintiff. If any of the foregoing arises during the term of this Agreement, Borrower shall promptly notify Lender in writing. 5.10 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All financial statements relating to Borrower which have been or may hereafter be delivered by Borrower to Lender have been prepared in accordance with GAAP and fairly present Borrower's financial condition as of the date thereof and Borrower's results of operations for the period then ended. There has not been a material adverse change in the financial condition of Borrower since the date of the most recent of such financial statements submitted to Lender. 5.11 SOLVENCY. Borrower is now and shall be at all times hereafter able to pay its debts (including trade debts) as they mature. 5.12 ERISA. The Intelogic Trace, Inc. Retirement Income Plan (the "Intelogic Plan") was terminated by the Pension Benefit Guaranty Corporation effective as of November 21, 1994, as disclosed on Schedule 5.12. Except for the Intelogic Plan, neither the Borrower nor any ERISA Affiliate maintains or contributes to any pension plan subject to Title IV of ERISA. The Borrower and its ERISA Affiliates are in material compliance with the provisions of ERISA and the qualification requirements of Section 401(a) of the IRC and any regulations thereunder with respect to any Plan intended to constitute a qualified plan under Section 401(a) of the IRC. No Prohibited Transaction has occurred with respect to a Plan. Except with respect to the Intelogic Plan, Borrower and its ERISA Affiliates have made all contributions required to be made by them to any Plan when due. 5.13 ENVIRONMENTAL CONDITION. Except as to cleaning material and solutions, packing materials and video display tubes used or repaired in Borrower's ordinary course of business, none of Borrower's properties or assets has ever been used by Borrower or, to the best of Borrower's knowledge, by previous owners or operators in the disposal of, or to produce, store, handle, treat, release or 23 transport, any hazardous waste or hazardous substance. None of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute. No lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned by Borrower. Borrower has not received a summons, citation, notice or directive from the Environmental Protection Agency or any other federal or state governmental agency concerning any action or omission by Borrower resulting in the releasing, or otherwise disposing of hazardous waste or hazardous substances into the environment. 5.14 MARGIN REGULATIONS. None of the proceeds of the Loan shall be used, directly or indirectly, (i) for the purpose of purchasing or carrying any "margin security," as that term is defined in Regulations G and U of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), (ii) for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security, or (iii) for any other purpose which might cause the Loan to be considered a "purpose credit" within the meaning of Regulation G, T, U or X of the Federal Reserve Board, or otherwise to violate any of those regulations. A true and accurate Federal Reserve Form G-3 dated as of the date of this Agreement has been executed and delivered by Borrower to Lender. Borrower shall not take or permit any agent acting on its behalf to take any action which might cause this Agreement or the Loan to violate any regulation of the Federal Reserve Board. 5.15 RELIANCE BY LENDER; CUMULATIVE. Each warranty, representation and agreement contained in this Agreement shall be automatically deemed repeated if any Overadvance is made pursuant to Section 2.2 hereof, and shall be conclusively presumed to have been relied on by Lender regardless of any investigation made or information possessed by Lender. The warranties, representations and agreements set forth herein shall be cumulative and in addition to any and all other warranties, representations and agreements which Borrower shall now or hereinafter give, or cause to be given, to Lender. 24 5.16 BANKRUPTCY MATTERS. The Plan of Reorganization and the Order confirming the Plan of Reorganization are final and non-appealable. 6. AFFIRMATIVE COVENANTS Borrower covenants and agrees that, until payment in full of the Obligations, and unless Lender shall otherwise consent in writing, Borrower shall do all of the following: 6.1 ACCOUNTING SYSTEM. Borrower at all times hereafter shall maintain a system of accounting in accordance with GAAP with ledger and account cards or computer tapes, discs, printouts and records pertaining to the Collateral which contain information as from time to time may reasonably be requested by Lender. Borrower shall also keep proper books of Accounts showing all sales, claims and allowances on its Inventory. 6.2 CASH FLOW, BALANCE SHEET AND INCOME STATEMENT REPORTS. Upon request of Lender, Borrower shall deliver to Lender (i) detailed cash flow reports reflecting all sources and uses of cash for the prior six (6) months and all projected sources and uses of cash for the next twelve (12) month period, (ii) monthly cash flow reports, (iii) monthly balance sheet reports and (iv) monthly income statement reports. 6.3 ASSIGNMENTS OF ACCOUNTS. Upon request of Lender, Borrower shall provide Lender with schedules describing all Accounts and shall execute and deliver to Lender assignments of all Accounts. Borrower's failure to execute and deliver such schedules or assignments shall not affect or limit Lender's security interest or other rights in and to the Accounts. 6.4 SEC FILINGS; REPORTS; CERTIFICATES. Borrower shall deliver to Lender, concurrently with the filing thereof with the Securities and Exchange Commission, Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports and Form 8-K Current Reports, and any other filings made by Borrower with the Securities and Exchange Commission. Borrower shall also deliver to Lender any other report reasonably requested by Lender relating to the Collateral and the financial condition of Borrower. 25 Upon request of Lender, Borrower shall deliver to Lender a certificate signed by its chief financial officer or treasurer to the effect that: (a) all reports, statements or computer prepared information of any kind or nature delivered or caused to be delivered to Lender hereunder (i) to the extent applicable have been prepared in accordance with GAAP consistently applied and (ii) fully and fairly present the financial condition of Borrower; (b) Borrower is in timely compliance with all representations, warranties and covenants hereunder; and (c) on the date of delivery of such certificate to Lender the officer signing such certificate does not know of any condition or event which constitutes an Event of Default. To the extent that Borrower is unable to so certify as to any of the foregoing matters, Borrower shall provide such certificate with a detailed explanation of any matters to which it can not so certify. As soon as practicable, but in any event within two (2) Business Days after Borrower becomes aware of the existence of any Event of Default, or any development or other information which would have a Material Adverse Effect, Borrower shall give telephonic or telecopied notice specifying the nature of such Event of Default or development or information, including the anticipated effect thereof, which notice shall be promptly confirmed in writing within five (5) days. At such time as either an Event of Default has occurred or Lender determines that a material impairment of the prospect of repayment of any portion of the Obligations or the value or priority of Lender's security interest in the Collateral has occurred or is imminently likely to occur, Borrower hereby irrevocably authorizes and directs all auditors, accountants or other third parties to deliver to Lender, at Borrower's expense, copies of Borrower's financial statements, papers related thereto, and other accounting records of any nature in their possession, and to disclose to Lender, upon its request, any information they may have regarding Borrower's business affairs and financial condition. 6.5 TITLE TO EQUIPMENT. Upon Lender's request, Borrower shall immediately deliver to Lender, properly endorsed as collateral, any and all evidences of ownership of, certificates of title, or applications for title to any items of Equipment. 26 6.6 MAINTENANCE OF EQUIPMENT. Borrower shall keep and maintain the Equipment in good operating condition and repair, and make all necessary replacements thereto so that the condition and operating efficiency thereof shall at all times be maintained and preserved. Borrower shall not permit any item of Equipment to become a fixture to real estate or an accession to other property, and the Equipment is now and shall at all times remain personal property. 6.7 TAXES. All assessments and taxes, whether real, personal or otherwise, imposed, levied or assessed against Borrower or any of its property which have become due and payable, have been paid, or will be paid prior to delinquency, and shall hereafter be paid in full prior to delinquency, except to the extent controverted in good faith by Borrower by proceedings which stay the imposition of any penalty or fine resulting from the imposition thereof, before delinquency or before the expiration of any extension period. Borrower shall make due payment or deposit, prior to delinquency, of all federal, state and local taxes, assessments or contributions required of it by law, except to the extent controverted in good faith by Borrower by proceedings which stay the imposition of any penalty or fine resulting from the imposition thereof, and will execute and deliver to Lender, on demand, appropriate certificates attesting to the payment or deposit thereof. Borrower will make payment or deposit, prior to delinquency, of all tax payments and withholding taxes required of it by applicable laws, including, without limitation, those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state and federal income taxes, and will, upon request, furnish Lender with proof satisfactory to Lender indicating that Borrower has made such payments or deposits. 6.8 INSURANCE. (a) Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses. Borrower shall also maintain business interruption, public liability, product liability, and property damage insurance relating to Borrower's ownership and use of the Collateral, as well as insurance against larceny, embezzlement, and criminal misappropriation. 27 (b) All such policies of insurance shall be in such form, and with such companies, and in such amounts as ordinarily insured against by other owners in similar businesses and reasonably satisfactory to Lender. All such policies of insurance (except those of public liability and property damage) shall contain a lender's loss payable endorsement, or an equivalent endorsement in a form reasonably satisfactory to Lender, showing Lender and Foothill as co-loss payees thereof, and shall contain a waiver of warranties, and shall specify that the insurer must give at least ten (10) days notice to Lender before cancelling its policy for any reason. Borrower shall deliver to Lender certified copies of such policies of insurance or certificates evidencing the existence of such policies and evidence of the payments of all premiums therefor. After the occurrence and continuation of an Event of Default, all proceeds payable under any such policy shall be paid to and retained by Lender. 6.9 LENDER EXPENSES. Borrower shall immediately and without demand reimburse Lender for all sums expended by Lender which constitute Lender Expenses and Borrower hereby authorizes and approves all advances and payments by Lender in accordance with provisions of this Agreement for items constituting Lender Expenses. 6.10 FOOTHILL DOCUMENTS. Upon request of Lender, Borrower shall deliver to Lender copies of all documents, correspondence, notices and certificates delivered in connection with or relating to the Foothill Loan. 6.11 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and under the other Loan Documents made by or on behalf of Borrower shall be made without setoff or counterclaim and shall be free and clear of, and without deduction or withholding for or on account of, any federal, State or local taxes. 7. NEGATIVE COVENANTS Borrower covenants and agrees that, until payment in full of the Obligations, Borrower will not do any of the following without Lender's prior written consent: 7.1 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter into any transaction not in the ordinary and usual course of Borrower's business, including, without 28 limitation, the sale, lease or other disposition of, moving, relocation or transfer, whether by sale or otherwise, of any of Borrower's assets having an aggregate value in excess of $50,000 (other than sales of Inventory in the ordinary and usual course of Borrower's business as presently conducted and sales of the Securities for cash in arms-length transactions and for fair market value, provided in each case the proceeds thereof are applied by Borrower in accordance with Section 2.3 hereof), the incurrence of any debts outside the ordinary and usual course of Borrower's business except for renewals or extensions of existing debts, or the making of any advance or loan except in the ordinary course of business as presently conducted. 7.2 LIENS. Create, incur, assume or permit to exist, directly or indirectly, any lien on or with respect to any of its property or assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens. 7.3 CHANGE NAME. Change Borrower's name, business structure or identity, or add any new fictitious name without giving Lender ninety (90) days prior written notice of such change. 7.4 MERGE, ACQUIRE. Acquire, merge or consolidate with or into any other business organization; provided, however, that any subsidiary may be merged into or consolidated with Borrower so long as (i) no provision of this Agreement would be violated thereby, (ii) Borrower gives Lender at least ninety (90) days prior written notice of such merger or consolidation, and (iii) Lender's rights in any Collateral will not be materially and adversely affected by such merger or consolidation. 7.5 GUARANTEE. Guarantee or otherwise become in any way liable with respect to the obligations of any third party except by endorsement or instruments or items of payment for deposit to the account of Borrower or which are transmitted or turned over to Lender, except for (i) guarantees existing on the date hereof as listed on Schedule 7.5 attached hereto, (ii) guarantees by endorsement of negotiable Instruments for deposit or collection in the ordinary course of business, and (iii) guarantees and contingent liabilities not exceeding in the aggregate at any one time Five Hundred Thousand Dollars ($500,000). 29 7.6 RESTRUCTURE. Make any change in Borrower's financial structure or in any of its business operations, or change the date of its fiscal year if such change would have a Material Adverse Effect on the Borrower's business condition or on its ability to pay the Obligations, as determined by Lender in its reasonable discretion. 7.7 PREPAYMENTS. Prepay any indebtedness owing to any third party. 7.8 AMEND FOOTHILL LOAN. Authorize or execute any amendment or waiver with respect to the Foothill Loan without the prior written consent of Lender. 7.9 CHANGE OF OWNERSHIP. Cause, any direct or indirect change in Borrower's ownership which would result in a Change of Control. 7.10 CONSIGNMENTS. Except in the ordinary course of Borrower's business, consign any Inventory, sell any goods on bill and hold or other unusual terms of sale. 7.11 DISTRIBUTIONS. Make any distribution or declare or pay any dividends (in cash) on, or purchase, acquire, redeem or retire any of Borrower's capital stock, of any class, whether now or hereafter outstanding. 7.12 ACCOUNTING METHODS. Modify or change its method of accounting or enter into, modify or terminate any agreement presently existing or at any time hereafter entered into with any third party accounting firm or service bureau for the preparation or storage of Borrower's accounting records without said accounting firm or service bureau agreeing to provide Lender information regarding the Collateral or Borrower's financial condition. Borrower waives the right to assert a confidential relationship, if any, it may have with any accounting firm or service bureau in connection with any information requested by Lender pursuant to or in accordance with this Agreement, and agrees that Lender may contact directly any such accounting firm or service bureau in order to obtain such information. 7.13 INVESTMENTS. Directly or indirectly make or own any beneficial interest in (including stock, partnership interest or other securities of), or make any loan, advance or capital contribution to, any corporation, association, person or entity other than (i) investments of the type and 30 quantity existing on the date hereof and listed on Schedule 7.13 hereto; (ii) "Permitted Investments" (customarily defined as obligations guaranteed by the United States, commercial paper maturing not more than 270 days after the Issuance date and rated P-1 or A-1 or better, certificates of deposit maturing not more than one (1) year after acquisition, and repurchase agreements having maturities not more than ninety (90) days from the date of acquisition; and (iii) other investments not in excess of One Hundred Thousand Dollars ($100,000). 7.14 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or permit to exist any material transaction with any person or entity controlling, controlled by, or under common control (whether by contract, ownership of voting securities, or otherwise) with Borrower except for transactions which are in the ordinary course of Borrower's business, upon fair and reasonable terms and no less favorable to Borrower than would be obtained in an arm's length transaction with non-affiliated person or entity. 7.15 SUSPENSION. Suspend or go out of business. 7.16 INDEBTEDNESS. Create or suffer to exist any monetary obligation or indebtedness except, (i) the Obligations, (ii) the Foothill Loan, (iii) monetary obligation or indebtedness of Borrower in an aggregate principal amount not exceeding One Hundred Thousand Dollars ($100,000), (iv) current liabilities in respect of taxes, assessments and governmental charges or levies incurred, or claims for labor, materials, inventory, services, supplies and rentals incurred, or for goods or services purchased, in the ordinary course of business consistent with the past practice of Borrower, (v) guarantees permitted under Section 7.5 hereof, and (vi) indebtedness of Borrower outstanding on the Effective Date and reflected on Schedule 7.16 hereto. 8. EVENTS OF DEFAULT Any one or more of the following events shall constitute an Event of Default by Borrower under this Agreement: 8.1 If Borrower fails to pay when due and payable or when declared due and payable, any portion of the Obligations (whether of principal, interest, fees and 31 charges due Lender, taxes, reimbursement of Lender Expenses, or otherwise); 8.2 If Borrower fails to prepay the portion of the Obligations that are mandatorily prepayable in accordance with Section 2.3 hereof within two (2) Business Days after receipt by the Borrower of any amounts to be applied to the Obligations in accordance with such Section; 8.3 If Borrower fails or neglects to perform, keep or observe any term, provision, condition, covenant or agreement contained in this Agreement, in any of the Loan Documents, under the Plan of Reorganization and the Order confirming the Plan of Reorganization or in any other present or future agreement between Borrower and Lender; 8.4 If there is a material impairment of the prospect of repayment of any portion of the Obligations owing to Lender or a material impairment of the value or priority of Lender's security interests in the Collateral; 8.5 If any material portion of Borrower's assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any judicial officer or assignee unless Borrower corrects any such action within three (3) Business Days after the occurrence thereof; 8.6 If an Insolvency Proceeding is commenced by Borrower; 8.7 If an Insolvency Proceeding is commenced against Borrower which is not stayed or dismissed within forty-five (45) days; 8.8 If Borrower is enjoined, restrained or in any way prevented by court order from continuing to conduct all or any material part of its business affairs and the failure by Borrower to continue to conduct such affairs could reasonably be expected to have a Material Adverse Effect, unless Borrower appeals and obtains a stay of such order within three (3) Business Days after the entry thereof; 8.9 Unless adequately bonded to Lender's reasonable satisfaction within a reasonable time after filing of such lien but in any event prior to the commencement of foreclosure proceedings with respect 32 thereto, the occurrence of a notice of lien, levy or assessment is filed of record with respect to any of Borrower's assets by the United States Government or any department, agency or instrumentality thereof, or by any state, county, municipal or governmental agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a lien, whether choate or otherwise, upon any of Borrower's assets and the same is not paid on the payment date thereof; 8.10 If a judgment or other claim becomes a lien or encumbrance upon any material portion of Borrower's assets; 8.11 If Borrower fails to pay any principal of, or premium or interest on, any monetary obligation or indebtedness for borrowed money owing to any person other than Lender, or any capitalized lease obligations, contingent indebtedness in connection with any guarantee, letter of credit, indemnity or similar type of instrument in favor of any person other than Lender, in any case in an amount in excess of Five Hundred Thousand Dollars ($500,000), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise); or any other event shall occur or condition shall exist under any agreement or instrument relating to any such indebtedness, that would accelerate, or would (following notice or any cure period) permit the acceleration of, the maturity of such indebtedness; or any such indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; 8.12 If Borrower makes any payment on account of monetary obligations or indebtedness which have been subordinated to the Obligations except to the extent such payment is allowed under this Agreement or under any subordination agreement entered into with Lender (it being expressly agreed that no such subordinated monetary obligation or indebtedness exists as of the date of the execution of this Agreement); 8.13 If any misstatement or misrepresentation exists now or hereafter in any warranty, representation, statement or report made to Lender by Borrower or any officer, employee, agent or director of Borrower, or if any 33 such warranty or representation is withdrawn by any officer or director; which misstatement, misrepresentation or withdrawal could reasonably be expected to have a Material Adverse Effect; 8.14 If any guaranty of the Obligations is limited or terminated by operation of law or by the guarantor thereunder, or any guarantor becomes the subject of an Insolvency Proceeding; 8.15 If there occurs any event or circumstance that has a Material Adverse Effect; 8.16 If a Prohibited Transaction or Reportable Event shall occur with respect to a Plan which would be reasonably likely to have a Material Adverse Effect; if any lien upon the assets of Borrower in connection with any Plan shall arise; if Borrower or any ERISA Affiliate shall completely or partially withdraw from a Multiemployer Plan or Multiple Employer Plan of which Borrower or such ERISA Affiliate was a substantial employer, and such withdrawal could, in the opinion of Lender, have a Material Adverse Effect on the financial condition of Borrower; if Borrower or any of its ERISA Affiliates shall fail to make full payment when due of all amounts which Borrower or any of its ERISA Affiliates may be required to pay to any Plan or any Multiemployer Plan as one or more contributions thereto; if Borrower or any of its ERISA Affiliates creates or permits the creation of any accumulated funding deficiency, whether or not waived; or upon the voluntary or involuntary termination of any Plan which termination could, in the opinion of Lender, have a Material Adverse Effect, or Borrower shall fail to notify Lender promptly and in any event within ten (10) days of the occurrence of any event which constitutes an Event of Default under this clause; and 8.17 If any writing, document, aging, certificate or other evidence of the Accounts or Inventory shall be materially incomplete, incorrect or misleading at the time the same is furnished to Lender; if Borrower shall fail to comply with the terms of Section 6.6 of this Agreement; or if Borrower shall fail to immediately remit each payment on any Account pursuant to the terms of Section 2.3 of this Agreement. 34 9. LENDER'S RIGHTS AND REMEDIES 9.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event of Default, Lender may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower: (a) Declare all Obligations, immediately due and payable; (b) Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of Lender, but without affecting Lender's rights and security interest in the Collateral and without affecting the Obligations; (c) Settle or adjust disputes and claims directly with account debtors for amounts and upon terms which Lender considers commercially reasonable, and in such cases, Lender will credit Borrower's loan account with only the net amounts received by Lender in payment of such disputed Accounts after deducting all Lender Expenses incurred or expended in connection therewith; (d) Cause Borrower to hold all returned Inventory in trust for Lender, segregate all returned Inventory from all other property of Borrower or in Borrower's possession and conspicuously label said returned Inventory as the property of Lender; (e) Without notice to or demand upon Borrower or any guarantor, make such payments and do such acts as Lender considers necessary or reasonable to protect its security interests in the Collateral. Borrower agrees to assemble the Collateral if Lender so requires, and to make the Collateral available to Lender as Lender may designate. Borrower authorizes Lender to enter the premises where the Collateral is located, to take and maintain possession of the Collateral or any part of it, and to pay, purchase, contest or compromise any encumbrance, charge or lien which in Lender's determination appears to be prior or superior to its security interest (except as set forth in the Intercreditor Agreement) and to pay all reasonable expenses incurred in connection therewith. With respect to any of Borrower's owned premises, Borrower hereby grants 35 Lender a license to enter into possession of such premises and to occupy the same, without charge, for up to one hundred twenty (120) days in order to exercise any of Lender's rights or remedies provided herein, at law, in equity, or otherwise; (g) Without notice to Borrower (such notice being expressly waived) set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Lender or any Related Entity, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Lender or any Related Entity; (h) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Lender is hereby granted a license or other right to use, without charge, Borrower's labels, Patents, Copyrights, rights of use of any name, Trade Secrets, trade names, Trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to Lender's benefit; (i) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Lender determines is commercially reasonable. It is not necessary that the Collateral be present at any such sale; (j) Lender shall give notice of the disposition of the Collateral as follows: (1) Lender shall give Borrower and each holder of a security interest in the Collateral who has filed with Lender a written request for notice, a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Collateral, then the time on or after which the private sale or other disposition is to be made; 36 (2) The notice shall be personally delivered or mailed, postage prepaid, to Borrower as provided in Section 12 of this Agreement, at least ten (10) calendar days before the date fixed for the sale, or at least ten (10) calendar days before the date on or after which the private sale or other disposition is to be made, unless the Collateral is perishable or threatens to decline speedily in value. Notice to persons other than Borrower claiming an interest in the Collateral shall be sent to such addresses as they have furnished to Lender; (3) If the sale is to be a public sale, Lender shall also give notice of the time and place by publishing a notice one time at least ten (10) calendar days before the date of the sale in a newspaper of general circulation in the county in which the sale is to be held; (k) Lender may credit bid and purchase at any public sale; and (l) Any deficiency which exists after disposition of the Collateral as provided above will be paid immediately by Borrower. Lender will return any excess to Borrower, without interest and subject to the rights of third parties. 9.2 REMEDIES CUMULATIVE. Lender's rights and remedies under this Agreement, the Loan Documents and all other agreements shall be cumulative. Lender shall have all other rights and remedies not inconsistent herewith as provided under the UCC, by law or in equity. No exercise by Lender of one right or remedy shall be deemed an election, and no waiver by Lender of any Event of Default on Borrower's part shall be deemed a continuing waiver. No delay by Lender shall constitute a waiver, election, or acquiescence by it. 10. TAXES AND EXPENSES REGARDING THE COLLATERAL 37 If Borrower fails to pay, prior to delinquency, any monies (whether taxes, rents, assessments, insurance premiums, or otherwise) due to third persons or entities, or fails to make, prior to delinquency, any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, to the extent that Lender reasonably determines that such failure by Borrower could have a Material Adverse Effect on Lender's interests in the Collateral, in its reasonable discretion and without prior notice to Borrower, Lender may do any or all of the following: (a) make payment of the same or any part thereof, (b) set up such reserves in Borrower's loan account as Lender deems necessary to protect Lender from the exposure created by such failure, or (c) obtain and maintain insurance policies of the type discussed in Section 6.8 of this Agreement, and take any action with respect to such policies as Lender deems prudent. Any amounts paid or deposited by Lender shall constitute Lender Expenses, shall be immediately charged to Borrower's loan account and become additional Obligations, shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Lender shall not constitute an agreement by Lender to make similar payments in the future or a waiver by Lender of any Event of Default under this Agreement. Lender need not inquire as to, or contest the validity of, any such expense, tax, security interest, encumbrance, or lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing. 11. GOVERNING LAW; WAIVERS; AMENDMENTS; INDEMNIFICATION 11.1 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS; JURY TRIAL WAIVER. (a) Except as otherwise expressly provided in any of the Loan Documents, in all respects, including all matters of construction, validity and performance, this Agreement and the Obligations arising hereunder shall be governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Massachusetts applicable to contracts made and performed in such state, without regard to principles thereof regarding conflict of laws, and any applicable laws of the United States of America. (b) Borrower and Lender irrevocably consent and submit to the non-exclusive jurisdiction of the courts of the Commonwealth of Massachusetts and waive any objection 38 based on venue or FORUM NON CONVENIENS with respect to any action instituted therein, and agree that any dispute arising out of the relationship between any such persons or the conduct of any such persons in connection with this Agreement or otherwise shall be heard only in the courts described above (except that Lender shall have the right to bring any action or proceeding against Borrower or its property in the courts of any other jurisdiction which Lender deems necessary or appropriate in order to realize on the Collateral). (c) Borrower hereby waives personal service of any and all process upon it and consents that all such service of process may be made by registered mail (return receipt requested) directed to its address set forth in Section 12 hereof and service so made shall be deemed to be completed five (5) days after the same shall have been deposited in the U.S. mail. In addition, Lender agrees promptly to forward by registered mail any process so served upon such agent to Borrower at its address set forth in Section 12 hereof. Borrower hereby consents to service of process as aforesaid. (d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS AGREEMENT OR THE LOAN DOCUMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR EITHER OF THEM IN RESPECT TO THIS AGREEMENT OR THE LOAN DOCUMENTS OR THE TRANSACTIONS RELATED HERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY OF THEM MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (e) Nothing in this Section 11.1 shall affect the rights of Lender to serve legal process in any other manner permitted by law or affect the rights of Lender to bring any action or proceeding against Borrower or its property in the courts of any other jurisdiction. (f) Lender shall not have any liability to Borrower (whether in tort, contract, equity or otherwise) 39 for losses suffered by Borrower in connection with, arising out of, or in any way related to the transactions or relationships contemplated by this Agreement, or any act, omission or event occurring in connection herewith, unless it is determined by a final and non-appealable judgment or court order binding on Lender, that the losses were the result of acts or omission constituting gross negligence or willful misconduct. In any such litigation, Lender shall be entitled to the benefit of the rebuttable presumption that it acted in good faith and with the exercise of ordinary care in the performance by it of the terms of this Agreement. 11.2 WAIVER OF NOTICES. Borrower hereby expressly waives demand, presentment, protest and notice of protest and notice of dishonor with respect to any and all instruments and commercial paper, included in or evidencing any of the Obligations or the Collateral, and any and all other demands and notices of any kind or nature whatsoever with respect to the Obligations, the Collateral and this Agreement, except such as are expressly provided for herein. No notice to or demand on Borrower which Lender may elect to give shall entitle Borrower to any other or further notice or demand in the same, similar or other circumstances. 11.3 AMENDMENTS AND WAIVERS. Neither this Agreement nor any provision hereof shall be amended modified, waived or discharged orally or by course of conduct, but only by a written agreement signed by an authorized officer of Lender and no Event of Default shall be deemed cured unless such cure is acknowledged in writing by Lender. Lender shall not, by any act, delay, omission or otherwise be deemed to have expressly or impliedly waived any of its rights, powers and/or remedies unless such waiver shall be in writing and signed by an authorized officer of Lender. Any such waiver shall be enforceable only to the extent specifically set forth therein. A waiver by Lender of any right, power and/or remedy on any one occasion shall not be construed as a bar to or waiver of any such right, power and/or remedy Lender would otherwise have on any future occasion, whether similar in kind or otherwise. 11.4 WAIVER OF COUNTERCLAIMS. Borrower waives all rights to interpose any claims, deductions, setoffs or counterclaims of any nature (other then compulsory counterclaims) in any action or proceeding with respect to 40 this Agreement, the Obligations, the Collateral or any matter arising therefrom or relating hereto or thereto. 11.5 INDEMNIFICATION. Borrower shall indemnify, defend and hold Lender, and its directors, agents employees and counsel, harmless from and against any and all losses, claims, damages, liabilities, deficiencies, judgments, penalties or expenses imposed on, incurred by or asserted against any of them in connection with any litigation, investigation, claim or proceeding commenced or threatened related to the negotiation, preparation, execution, delivery, enforcement, performance or administration of this Agreement, any Loan Document, or any undertaking or proceeding related to any of the transactions contemplated hereby or any act, omission to act, event or transaction related or attendant thereto, including, without limitation, amounts paid in settlement, court costs, and the reasonable fees and expenses of counsel, PROVIDED, THAT, Borrower shall have no obligation under this Section 11.5 to Lender with respect to any indemnified matter resulting solely from Lender's gross negligence or willful misconduct as determined pursuant to a final non-appealable order of a court of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section may be unenforceable because it violates any law or public policy, Borrower shall pay the maximum portion which it is permitted to pay under applicable law to Lender in satisfaction of indemnified matters under this Section. The foregoing indemnity shall survive the payment of the Obligations and the termination of this Agreement. All of the foregoing costs and expenses shall be part of the Obligations and secured by the Collateral 12. NOTICES Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection therewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be delivered in person with receipt acknowledged or by registered or certified mail, return receipt requested, postage prepaid, or telecopied and confirmed by telecopy answerback addressed as follows: 41 If to Borrower: Intelogic Trace, Inc. 8415 Datapoint Drive San Antonio, Texas 78229-8480 Attention: Philip D. Freeman Telecopy No. (210) 593-2201 With a copy to: Cox & Smith, Inc. 112 E. Pecan St. Suite 1800 San Antonio, Texas 78205 Attention: Deborah D. Williamson Telecopy No. (210) 226-8395 If to Lender: Fidelity Capital & Income Fund 82 Devonshire Street - F7D Boston, Massachusetts 02109 Attention: Judy K. Mencher Telecopy No. (617) 476-7774 With a copy to: Weil, Gotshal & Manges 767 Fifth Avenue New York, New York 10153 Attention: Bruce R. Zirinsky Telecopy No. (212) 310-8007 The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. All notices or demands sent in accordance with this Section 12 shall be deemed received on the earlier of the date of actual receipt or three (3) calendar days after the deposit thereof in the mail. 13. DESTRUCTION OF BORROWER'S DOCUMENTS All documents, schedules, invoices, agings, or other papers delivered to Lender may be destroyed or otherwise disposed of by Lender four (4) months after they are delivered to or received by Lender, unless Borrower requests, in writing, the return of said documents, schedules or other papers and makes arrangements, at Borrower's expense, for their return. 42 14. GENERAL PROVISIONS 14.1 EFFECTIVENESS. This Agreement shall be binding and deemed effective when executed by Borrower and accepted and executed by Lender. 14.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that Borrower may not assign this Agreement or any rights hereunder without Lender's prior written consent which such consent shall not be unreasonably withheld or delayed, and any prohibited assignment shall be absolutely void. No consent to an assignment by Lender shall release Borrower from its Obligations. Lender may assign this Agreement and its rights and duties hereunder. Lender reserves the right to sell, assign, transfer, negotiate, or grant participations in all or any part of, or any interest in Lender's rights and benefits hereunder. In connection therewith, Lender may disclose all documents and information which Lender now or hereafter may have relating to Borrower or Borrower's business. 14.3 SECTION HEADINGS. Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each paragraph applies equally to this entire Agreement. 14.4 INTERPRETATION. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Lender or Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto. 14.5 FINAL AGREEMENT OF THE PARTIES. THIS AGREEMENT (INCLUDING THE SCHEDULES AND EXHIBITS HERETO, IF ANY), THE NOTE AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. 43 14.6 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 14.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. 14.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or payment of the Obligations by Borrower or any guarantor of the Obligations or the transfer by either or both of such parties to Lender of any property of either or both of such parties should for any reason subsequently be declared to be improper under any state or federal law relating to creditors' rights, including, without limitation, provisions of the United States Bankruptcy Code relating to fraudulent conveyances, preferences and other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if Fidelity is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Fidelity is required to repay or restore, and as to all reasonable costs, expenses and attorneys' fees of Fidelity related thereto, the liability of Borrower or such guarantor shall automatically be revived, reinstated and restored and shall exists as though such Voidable Transfer had never been made. 15. TERMINATION. Upon termination of this Agreement and upon complete repayment of all Obligations owing hereunder, Lender shall promptly take all actions as are reasonably requested by Borrower to release all rights Lender may have (except as to those which expressly survive termination) and Lender shall give such notices and complete such documents reasonably necessary to effect such termination. 44 IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above. INTELOGIC TRACE, INC., By: MIKE R. ELLIS Name: Mike R. Ellis Title: Vice President FIDELITY CAPITAL & INCOME FUND, By: JOHN H. COSTELLO Name: John H. Costello Title: Assistant Treasurer 45 EX-10.36 8 SETTLEMENT AGREEMENT PENSION BENEFIT GUARANTY EXHIBIT 10.36 SETTLEMENT AGREEMENT THIS SETTLEMENT AGREEMENT ("Agreement") is made this 22nd day of November, 1994, by and among the PENSION BENEFIT GUARANTY CORPORATION ("PBGC"), INTELOGIC TRACE, INC. ("Debtor"), and INTELOGIC TRACE SYSTEMS GROUP, INC., INTELOGIC TRACE CANADA, INC., ITTG, INC., TLA, INC., and INTELOGIC TRACE MARION GROUP OF PUERTO RICO, INC. (collectively, the "Subsidiaries"). WITNESSETH: WHEREAS, the PBGC is a wholly-owned United States government corporation established to administer and enforce the pension plan termination insurance program created under Title IV of the Employee Retirement Income Security Act of 1974 ("ERISA"), AS AMENDED, 29 U.S.C. ss.ss. 1301-1461 (1988 and Supp. V 1993); and WHEREAS, the Debtor is a corporation organized under the laws of the state of New York with its principal place of business in San Antonio, Texas; and WHEREAS, the Debtor is the contributing sponsor of the Intelogic Trace, Inc. Retirement Income Plan ("Pension Plan"), within the meaning of 29 U.S.C. ss. 1301 (a) (13) (B); and WHEREAS, the Debtor and the Subsidiaries are members of a controlled group within the meaning of 29 U.S.C. ss. 1301 (a) (14); and WHEREAS, the Pension Plan is a tax-qualified, defined 1 benefit pension plan which is covered by Title IV of ERISA, 29 U.S.C. ss. 1321; and WHEREAS, generally, the contributing sponsor of a pension plan that terminates under Title IV of ERISA and all members of its controlled group are jointly and severally liable for: (1) any unfunded benefit liabilities under the terminated plan, pursuant to 29 U.S.C. ss. 1362 (b); (2) and unpaid minimum funding contributions due to the plan, pursuant to 29 U.S.C. ss. 1362(c); and (3) and unpaid premiums due to the PBGC, pursuant to 29 U.S.C. ss.ss. 1306-07; and WHEREAS, on August 5, 1994, the Debtor filed a petition under Chapter 11 of the Bankruptcy Code and is currently operating its business as a debtor-in-possession; and WHEREAS, nonE of the Subsidiaries has filed a petition under Chapter 11 of the Bankruptcy Code; and WHEREAS, on September 30, 1994, the PBGC filed with the Bankruptcy Court the following three contingent claims against the Debtor in connection with the Pension Plan: (a) a claim for unfunded benefit liabilities of the Pension Plan, pursuant to 29 U.S.C. ss. 1362(b) ("Unfunded Benefit Liabilities Claim"); (b) a claim for unpaid minimum funding contributions due to the Pension Plan, pursuant to 29 U.S.C. ss. 1362(c) ("Minimum Funding Contribution Claim"); and 2 (c) a claim for any unpaid premiums due to the PBGC, pursuant to 29 U.S.C. ss. 1307 ("Premium Claim") (the Unfunded Benefit Liabilities Claim, the Minimum Funding Contribution Claim, and the Premium Claim are hereinafter collectively referred to as the "Claims"); and WHEREAS, the PBGC assets that the Debtor and the Subsidiaries are jointly and severally liable for all amounts included in the Claims; and WHEREAS, the PBGC asserts that portions of the Minimum Funding Contribution Claim, the Unfunded Benefit Liabilities Claim, and the Premium Claim are entitled to various priorities under 11 U.S.C. ss. 507(a); and WHEREAS, the Debtor and the Subsidiaries dispute the PBGC's assertions; and WHEREAS, on November 21, 1994, the PBGC determined that the Pension Plan must be terminated; and WHEREAS, the parties have agreed to settle their differences in order to avoid the risk, expense and delay of litigation, NOW THEREFORE, in consideration of these premises, the parties agree to the terms and condition set forth below. 3 AGREEMENT 1. PBGC shall be allowed a general unsecured claim in the amount of approximately $3,391,150, which has been calculated in accordance with ERISA and regulations promulgated thereunder ("PBGC" Claim"). It is hereby agreed that the PBGC Claim shall be treated as a "Class 6 - Other Unsecured Claim" under the Modified First Amended Plan of Reorganization of Intelogic Trace, Inc. ("POR") and shall receive a pro rata distribution with other Class 6 creditors, and in addition, the PBGC shall receive an amount of New Preferred Stock equal to 20% of the New Preferred Stock that the PBGC would otherwise receive as a Class 6 creditor. The PBGC agrees that any payments to be made pursuant to the POR shall first be applied against any outstanding unpaid contributions due to the Pension Plan for the plan year ending July 31, 1994 and for the short plan year commencing on August 1, 1994 and ending on the effective date of the termination of the Pension Plan. 2. At the discretion of the PBGC, the Subsidiaries shall assign and convey all of their assets, if any, to the PBGC on or before the effective date of the Modified First Amended Plan of Reorganization of Intelogic Trace, Inc. The Debtor and the Subsidiaries shall take all reasonable and necessary documents to carry out the intent of this paragraph, including, without limitation all actions reasonably necessary to permit the liquidation, 4 collection, sale or other disposition of any assets of the Subsidiaries. 3. The Debtor and the Subsidiaries shall provide PBGC with information concerning any assets of the Subsidiaries as PBGC may reasonably request. The Debtors and the Subsidiaries also shall permit PBGC and its designees, upon reasonable prior notice, to inspect, audit and make copies of and extracts from all books and records and other papers in the possession of the Debtor or the Subsidiaries pertaining to any assets of the Subsidiaries. 4. This Agreement is conditioned on: (1) the Debtor's consent to termination of the Pension Plan under 29 U.S.C. ss. 1342, effective November 21, 1994, and (2) approval by the United States Bankruptcy Court for the Western District of Texas. 5. This Agreement may be signed in any number of counterparts, each of which shall be original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized agents on the dates indicated below. INTELOGIC TRACE, INC. Dated: 11/22/94 /s/ MARK S. HELWEGE By: Mark S. Helwege Title: President 5 INTELOGIC TRACE SYSTEMS GROUP, INC. Dated: 11/22/94 /s/ MARK S. HELWEGE By: Mark S. Helwege Title: President INTELOGIC TRACE CANADA, INC. Dated: 11/22/94 /s/ MARK S. HELWEGE By: Mark S. Helwege Title: President ITTG, INC. Dated: 11/22/94 /s/ MARK S. HELWEGE By: Mark S. Helwege Title: President TLA, INC. Dated: 11/22/94 /s/ MARK S. HELWEGE By: Mark S. Helwege Title: President INTELOGIC TRACE MARION GROUP OF PUERTO RICO, INC. Dated: 11/22/94 /s/ MARK S. HELWEGE By: Mark S. Helwege Title: President PENSION BENEFIT GUARANTY CORPORATION Dated: 11/24/94 /s/ JEFFREY B. COHEN By: Jeffrey B. Cohen Title: Deputy General Counsel 6 EX-10.37 9 AMENDED RESTATED LOAN AGREE FOOTHILL EXHIBIT 10.37 AMENDED AND RESTATED GENERAL LOAN AND SECURITY AGREEMENT BETWEEN FOOTHILL CAPITAL CORPORATION AND INTELOGIC TRACE, INC. TABLE OF CONTENTS PAGE 1. DEFINITIONS AND CONSTRUCTION................................. 2 1.1 Definitions............................................. 2 1.2 Accounting Terms........................................ 8 1.3 Code.................................................... 8 1.4 Construction............................................ 8 1.5 Schedules and Exhibits.................................. 9 2. LOAN AND TERMS OF PAYMENT.................................... 9 2.1 Revolving Advances...................................... 9 2.2 Overadvances............................................ 10 2.3 Interest: Rates, Payments, and Calculations............. 10 (a) Interest Rate....................................... 10 (b) Default Rate........................................ 10 (c) Alternative Interest Rate........................... 10 (d) Interest Savings.................................... 11 (e) Payments............................................ 11 (f) Computation......................................... 12 2.4 Crediting Payments...................................... 12 2.5 Statements of Obligations............................... 12 2.6 Fees.................................................... 12 (a) Closing Fee......................................... 12 (b) Unused Line Fee..................................... 13 (c) Financial Examination, Documentation and Appraisal Fees.................................... 13 3. CONDITIONS TO EFFECTIVENESS; TERM OF AGREEMENT............... 13 3.1 Conditions Precedent to Initial Advance................. 13 3.2 Term.................................................... 14 3.3 Effect of Termination................................... 14 3.4 Early Termination by Borrower........................... 14 4. CREATION OF SECURITY INTEREST................................ 14 4.1 Grant of Security Interest.............................. 14 4.2 Negotiable Collateral................................... 14 4.3 Collection of Accounts, General Intangibles, Negotiable Collateral................................. 14 4.4 Delivery of Additional Documentation Required........... 14 4.5 Power of Attorney....................................... 15 4.6 Right to Inspect........................................ 15 5. REPRESENTATIONS AND WARRANTIES............................... 15 5.1 No Prior Encumbrances................................... 16 5.2 Eligible Accounts....................................... 16 5.3 Location of Inventory and Equipment..................... 16 5.4 Location of Chief Executive Office...................... 16 i 5.5 Due Organization and Qualification...................... 16 5.6 Due Authorization; No Conflict.......................... 16 5.7 Litigation.............................................. 16 5.8 No Material Adverse Change in Financial Condition....... 17 5.9 Solvency................................................ 17 5.10 ERISA................................................... 17 5.11 Environmental Condition................................. 17 5.12 Patents, Copyrights and Trademarks...................... 18 5.13 Reliance by Foothill; Cumulative........................ 18 5.14 Prior Agreements........................................ 18 5.15 Bankruptcy Matters...................................... 18 6. AFFIRMATIVE COVENANTS........................................ 18 6.1 Accounting System....................................... 18 6.2 Collateral Reports...................................... 18 6.3 Schedules of Accounts................................... 19 6.4 Financial Statements, Reports, Certificates............. 19 6.5 Tax Returns............................................. 20 6.6 Returns and Allowances.................................. 20 6.7 Maintenance of Equipment................................ 20 6.8 Taxes................................................... 20 6.9 Insurance............................................... 20 6.10 Foothill Expenses....................................... 21 6.11 Financial Covenants..................................... 21 (a) Current Ratio....................................... 21 (b) Tangible Net Worth.................................. 21 (c) EBITDA.............................................. 21 6.12 No Setoffs or Counterclaims............................. 21 7. NEGATIVE COVENANTS........................................... 21 7.1 Indebtedness............................................ 21 7.2 Liens................................................... 22 7.3 Restrictions on Fundamental Changes..................... 22 7.4 Extraordinary Transactions and Disposal of Assets....... 22 7.5 Change Name............................................. 22 7.6 Merge, Acquire.......................................... 22 7.7 Guarantee............................................... 23 7.8 Restructure............................................. 23 7.9 Prepayments............................................. 23 7.11 Capital Expenditures.................................... 23 7.12 Distributions........................................... 23 ii 7.13 Accounting Methods...................................... 23 7.14 Investments............................................. 23 7.15 Transactions with Affiliates............................ 23 7.16 Suspension.............................................. 24 7.17 Compensation............................................ 24 8. EVENTS OF DEFAULT............................................ 24 9. FOOTHILL'S RIGHTS AND REMEDIES............................... 26 9.1 Rights and Remedies..................................... 26 9.2 Remedies Cumulative..................................... 27 10. TAXES AND EXPENSES REGARDING THE COLLATERAL.................. 28 11. WAIVERS; INDEMNIFICATION..................................... 28 11.1 Demand; Protest; etc.................................... 28 11.2 Foothill's Liability for Inventory or Equipment......... 28 11.3 Indemnification......................................... 28 12. NOTICES...................................................... 28 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER................... 29 14. DESTRUCTION OF BORROWER'S DOCUMENTS.......................... 30 15. GENERAL PROVISIONS........................................... 30 15.1 Effectiveness........................................... 30 15.2 Successors and Assigns.................................. 30 15.3 Section Headings........................................ 30 15.4 Interpretation.......................................... 31 15.5 Severability of Provisions.............................. 31 15.6 Amendments in Writing................................... 31 15.7 Counterparts............................................ 31 15.8 Revival and Reinstatement of Obligations................ 31 15.9 Integration............................................. 31 iii TABLE OF SCHEDULES Schedule 5.4 Location of Inventory and Equipment Schedule 5.7 Pending Litigation Schedule 5.10 ERISA Violations Schedule 5.12 Borrower's Patents, Trademarks and Copyrights Schedule 6.2 Form of Certificate Re: Adjusted Service Value iv AMENDED AND RESTATED GENERAL LOAN AND SECURITY AGREEMENT This AMENDED AND RESTATED GENERAL LOAN AND SECURITY AGREEMENT, is entered into as of December 8, 1994 between FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill"), with a place of business located at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333, and Intelogic Trace, Inc., a New York corporation ("Borrower"), with its chief executive office located at Turtle Creek Towers I, 8415 Datapoint Drive, San Antonio, Texas 78229-8480, with reference to the following facts: A. Foothill and Borrower have previously entered into a General Loan and Security Agreement dated as of June 20, 1991, together with other written agreements and amendments thereto (collectively, the "GLSA"), the terms and obligations of which are reaffirmed. B. On August 5, 1994, Borrower filed a petition for reorganization under Chapter 11 of the Bankruptcy Code with the United States Bankruptcy Court, Western District of Texas, San Antonio Division commencing Case No. 94-52172C (the "Case"). C. During the Case, Foothill continued to provide certain financing to Borrower pursuant to the GLSA as modified by and pursuant to various pleadings filed and orders entered in connection with the Case (collectively, the "DIP Loan"). D. On December 8, 1994, Borrower reorganized pursuant to that certain Modified First Amended Chapter 11 Plan of Intelogic Trace, Inc. dated October 12, 1994 and filed in the Case (the "Reorganization Plan"), and the Final Order entered on November 28, 1994 (the "Order") confirming the Plan filed and entered in connection with Case. Pursuant to the Reorganization Plan and Order, all assets and property of Borrower which were subject to the Case will vest in and transfer to Borrower upon entry of the Order. E. Foothill and Borrower wish to restate their respective agreements and obligations under the GLSA and the orders entered in connection with the DIP Loan as provided in this Agreement. F. As of November 30, 1994, Borrower was indebted to Foothill in the amount of Six Million Nine Hundred Ninety-One Thousand One Hundred Forty-Three and 64/100 Dollars ($6,991,143.64) (the "Existing Obligations"). The parties agree that the following shall constitute the entire agreement between them which shall restate the existing agreements between them: 1 1. DEFINITIONS AND CONSTRUCTION 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the following definitions: "ACCOUNT DEBTOR" means any person who is or who may become obligated under, with respect to, or on account of an Account. "ACCOUNTS" means any "account," as such term is defined in section 9-106 of the Code and, in any event, shall include, without limitation, all accounts receivable, book debts, service contracts and other forms of obligations (other than forms of obligations evidenced by "chattel paper", "documents" or "instruments", as those terms are defined under the Code) including, without limitation, under any trade names, styles or divisions thereof, whether arising out of goods sold or services performed by Borrower or from any other transaction, whether or not the same involves the sale of goods or the performance of services by Borrower (including, without limitation, any such obligation that might be characterized as an account or contract right under the Code) and all of Borrower's rights in, to and under all purchase orders or receipts for goods or services, and all of Borrower's rights to any goods represented by any of the foregoing (including, without limitation, unpaid seller's rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), and all moneys due or to become due to Borrower under all contracts for the sale of goods or the performance of services or both by Borrower (whether or not yet earned by performance on the part of Borrower or in connection with any other transaction) including, without limitation, the right to receive the proceeds of said purchase orders and contracts, and all collateral security and guarantees of any kind given by any person with respect to any of the foregoing. "ADJUSTED SERVICE VALUE" means fifteen percent (15%) of Borrower's annualized field contract and time and materials service maintenance revenues, net of deferred revenues, measured on a monthly basis, consistently applied. The calculation of annualized field service maintenance revenues shall be determined by multiplying the field service maintenance revenues for the immediately preceding three (3) months by four (4). "AGREEMENT" means this Amended and Restated General Loan and Security Agreement and any extensions, riders, supplements, notes, amendments, or modifications to or in connection with this Amended and Restated General Loan and Security Agreement. "AUTHORIZED OFFICER" means any officer of Borrower. "BORROWER'S BOOKS" means all of Borrower's books and records including: ledgers; records indicating, summarizing, or evidencing Borrower's assets or liabilities, or the Collateral; all information relating to Borrower's business operations or financial condition; and all computer programs, disc or tape files, printouts, runs, or other computer prepared information relating to Borrower's business operations or financial condition, and the equipment containing such information. 2 "BORROWING BASE" has the meaning set forth in Section 2.1, but in no event shall the Borrowing Base exceed the Maximum Amount. "BUSINESS DAY" means any day which is not a Saturday, Sunday, or other day on which national banks are authorized or required to close. "CHANGE OF CONTROL" shall be deemed to have occurred at such times as a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities and Exchange Act of 1934, as amended) becomes the "beneficial owner" (as defined in Rule 13d- 3 under the Securities and Exchange Act of 1934, as amended), directly or indirectly, of more than twenty percent (20%) (or such other percentage as Foothill may consent to in writing) of the total voting power of all classes of stock then outstanding of Borrower normally entitled to vote in elections of directors, except as the same shall occur pursuant to the terms of Borrower's Reorganization Plan and Order. "CLOSING DATE" means the date of this Agreement. "CODE" means the California Uniform Commercial Code. "COLLATERAL" means each of the following: the Accounts; Borrower's Books; the Equipment; the General Intangibles; the Inventory; the Negotiable Collateral; any money, or other assets of Borrower which hereafter come into the possession, custody, or control of Foothill; and the proceeds and products, whether tangible or intangible, of any of the foregoing including proceeds of insurance covering any or all of the Collateral, and any and all Accounts, Equipment, General Intangibles, Inventory, Negotiable Collateral, money, Deposit Accounts, or other tangible or intangible property resulting from the sale, exchange, collection, or other disposition of the Collateral, or any portion thereof or interest therein, and the proceeds thereof. "CURRENT RATIO" means Borrower's current assets divided by Borrower's current liabilities (each determined in accordance with GAAP. "DAILY BALANCE" means the amount of an Obligation owed at the end of a given day. "EBITDA" means for any period, Borrower's net income before the deduction of interest expense, provision for taxes with respect to such period, depreciation and amortization expense (each determined in accordance with GAAP). "ELIGIBLE ACCOUNTS" means those Accounts created by Borrower in the ordinary course of business that arise out of Borrower's sale of goods or rendition of services, that strictly comply with all of Borrower's representations and warranties to Foothill as set forth in the Loan Documents, and that are and at all times shall continue to be reasonably acceptable to Foothill in all respects; provided, however, that standards of eligibility may be fixed and revised from time to time by Foothill in Foothill's commercially reasonable judgment. Eligible Accounts shall not include the following: 3 (a) Accounts which the Account Debtor has failed to pay within sixty (60) days of due date; (b) Accounts with selling terms of more than sixty (60) days; (c) Accounts with respect to which the Account Debtor is an officer, employee, affiliate, or agent of Borrower; (d) Accounts with respect to which goods are placed on consignment, guaranteed sale, sale or return, sale on approval, bill and hold, or other terms by reason of which the payment by the Account Debtor may be conditional; (e) Accounts with respect to which the Account Debtor is not a resident of the United States, and which are not either (1) covered by credit insurance in form and amount, and by an insurer satisfactory to Foothill, or (2) supported by one or more letters of credit that are assignable and have been delivered to Foothill in an amount and of a tenor, and issued by a financial institution, acceptable to Foothill; (f) With the exception of Accounts owing to Borrower by Datapoint Corporation, Accounts with respect to which the Account Debtor is a subsidiary of, related to, affiliated with or has common shareholders, officers or directors with Borrower; (g) Accounts with respect to which Borrower is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to Borrower; (h) Accounts with respect to an Account Debtor whose total obligations to Borrower exceed ten percent (10%) of all Eligible Accounts, to the extent of the obligations of such Account Debtor in excess of such percentage; (i) Accounts with respect to which the Account Debtor disputes liability or makes any claim with respect thereto, or is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; (j) Accounts the collection of which Foothill believes to be doubtful by reason of the Account Debtor's financial condition; and (k) Accounts owed by an Account Debtor that has failed to pay fifty percent (50%) or more of its accounts owed to Borrower within sixty (60) days of the date of the applicable invoices (within the applicable time period set forth in subparagraph (a) above). "EQUIPMENT" means all of Borrower's present and hereafter acquired machinery, machine tools, motors, equipment, furniture, furnishings, fixtures, vehicles (including motor vehicles and trailers), tools, parts, dies, jigs, goods (other than consumer goods or farm products), and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions, and improvements to any of the foregoing, wherever located. 4 "ERISA" means the Employment Retirement Income Security Act of 1974, as amended, and the regulations thereunder. "ERISA Affiliate" means each trade or business (whether or not incorporated and whether or not foreign) which is or may hereafter become a member of a group of which Borrower is a member and which is treated as a single employer under ERISA Section 4001(b)(1), or IRC Section 414. "EVENT OF DEFAULT" has the meaning set forth in Section 8. "FIDELITY" means Fidelity Capital & Income Fund, a Massachusetts business trust. "FIELD SUPPORT SPARES" means any and all spare parts, components, top assemblies, subassemblies and similar items used by Borrower to maintain or repair customer equipment. "FOOTHILL EXPENSES" means all: costs or expenses (including taxes, photocopying, notarization, telecommunication and insurance premiums) required to be paid by Borrower under any of the Loan Documents that are paid or advanced by Foothill; documentation, filing, recording, publication, appraisal (including periodic Collateral appraisals), real estate survey, environmental audit, and search fees assessed, paid, or incurred by Foothill in connection with Foothill's transactions with Borrower; costs and expenses incurred by Foothill in the disbursement of funds to Borrower (by wire transfer or otherwise); charges paid or incurred by Foothill resulting from the dishonor of checks; costs and expenses paid or incurred by Foothill to correct any default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or advertising to sell the Collateral, or any portion thereof, whether or not a sale is consummated; reasonable costs and expenses paid or incurred by Foothill in examining Borrower's Books; costs and expenses of third party claims or any other suit paid or incurred by Foothill in enforcing or defending the Loan Documents; and Foothill's reasonable attorneys' fees and expenses incurred in advising, structuring, drafting, reviewing, administering, amending, terminating, enforcing (including attorneys' fees and expenses incurred in connection with a "workout", a "restructuring", or an Insolvency Proceeding concerning Borrower or any guarantor of the Obligations), defending, or concerning the Loan Documents, whether or not suit is brought. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States, consistently applied. "GENERAL INTANGIBLES" means all of Borrower's present and future general intangibles and other personal property (including choses or things in action, goodwill, patents, trade names, trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, monies due under any royalty or licensing agreements, infringements, claims, computer programs, computer discs, computer tapes, literature, reports, catalogs, deposit accounts, insurance premium rates, tax refunds, and tax refund claims) other than goods and Accounts, and Borrower's Books relating to any of the foregoing. 5 "INDEBTEDNESS" shall mean: (a) all obligations of Borrower for borrowed money; (b) all obligations of Borrower evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations of Borrower in respect of letters of credit, letter of credit guaranties, bankers acceptances, interest rate swaps, controlled disbursement accounts, or other financial products; (c) all obligations under capitalized leases; (d) all obligations or liabilities of others secured by a lien or security interest on any asset owned by Borrower, irrespective of whether such obligation or liability is assumed; and (e) any obligation of Borrower guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with recourse to Borrower) any indebtedness, lease, dividend, letter of credit, or other obligation of any other person. "INSOLVENCY PROCEEDING" means any proceeding commenced by or against any person or entity under any provision of the United States Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law, including general assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other similar relief. "INTERCREDITOR AGREEMENT" means that certain Intercreditor Agreement among Foothill, Fidelity and Borrower of even date herewith. "INVENTORY" means all present and future inventory in which Borrower has any interest, including Field Support Spares, goods held for sale or lease or to be furnished under a contract of service and all of Borrower's present and future raw materials, work in process, finished goods, and packing and shipping materials, wherever located, and any documents of title representing any of the above and Borrower's Books relating to any of the foregoing. "INTERCREDITOR AGREEMENT" shall mean that certain Intercreditor Agreement dated as of the date hereof, between Foothill, Fidelity and Borrower. "IRC" means the Internal Revenue Code of 1986, as amended, and the regulations thereunder. "JUDICIAL OFFICER OR ASSIGNEE" means any trustee, receiver, controller, custodian, assignee for the benefit of creditors, or any other person or entity having powers or duties like or similar to the powers and duties of a trustee, receiver, controller, custodian, or assignee for the benefit of creditors. "LOAN DOCUMENTS" means, collectively, this Agreement, any note or notes executed by Borrower to the order of Foothill, the Intercreditor Agreement, and any other agreement entered into in connection with this Agreement, together with all alterations, amendments, changes, extensions, modifications, refinancing, refundings, renewals, replacements, restatements, or supplements, of or to any of the foregoing. "MAXIMUM AMOUNT" means the amount of Four Million Five Hundred Thousand Dollars ($4,500,000) until June 30, 1995, which shall be reduced by One Hundred Thousand Dollars ($100,000) on the first day of each month thereafter commencing with July 1, 1995 6 through December 1, 1995, at which time such amount shall be and remain at Three Million Nine Hundred Thousand Dollars ($3,900,000). "MAXIMUM RATE" means the maximum rate of interest permitted by applicable law as the same exists from day to day during the term of this Agreement, including, to the extent that Texas law may apply to the rights of the parties hereunder notwithstanding the choice of California law contained in Section 13 hereof (and without any intent of the parties to diminish or negate the intent or effect of the provisions of Section 13 hereof), the greatest of either (i) the "indicated rate ceiling" as defined in Article 1.04, Title 79, Revised Civil Statutes of Texas (the "Act") with said indicated rate ceiling being adjusted weekly as when permitted under the Act, (ii) the "annual ceiling" or the "quarterly ceiling" from time to time in effect as referred to and defined in the Act, upon the giving of notice by Foothill of its election to utilize the "annual ceiling" or the "quarterly ceiling" to the extent permitted by the Act and with the effect provided in Section (h)(1) of the Act, (iii) the rate permitted by any federal law if such federal law applies or may be applied to this transaction and when and for so long as the rate permitted thereunder is greater than that permitted under clause (i) or clause (ii) hereof, or (iv) the maximum rate permitted by applicable law when and as such law changes to permit a greater maximum rate than that stated in clauses (i), (ii) or (iii) above. "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in ERISA Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees of Borrower or any ERISA Affiliate. "NEGOTIABLE COLLATERAL" means all of Borrower's present and future letters of credit, notes, drafts, instruments, documents, leases, chattel paper, and Borrower's Books relating to any of the foregoing. "OBLIGATIONS" means all Obligations under the GLSA, all obligations and indebtedness under the DIP Loan, the Existing Obligations, all claims and administrative claims by Foothill in connection with the Case, all loans, advances, debts, principal, interest (including any interest that, but for the provisions of the United States Bankruptcy Code, would have accrued), premiums, liabilities (including all amounts charged to Borrower's loan account pursuant to any agreement authorizing Foothill to charge Borrower's loan account), obligations, fees, lease payments, guaranties, covenants, and duties owing by Borrower to Foothill of any kind and description (whether pursuant to or evidenced by the Loan Documents, by any note or other instrument, or by any other agreement between Foothill and Borrower, and whether or not for the payment of money), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including any debt, liability, or obligation owing from Borrower to others that Foothill may have obtained by assignment or otherwise, and further including all interest not paid when due and all Foothill Expenses that Borrower is required to pay or reimburse by the Loan Documents, by law, or otherwise. "OVERADVANCE" has the meaning set forth in Section 2.1(a). "PBGC" means the Pension Benefit Guarantee Corporation. 7 "PCS ESCROW AGREEMENT" shall mean that certain escrow agreement by and between Borrower and PC Service Source, Inc. concerning the sale of Borrower's Inventory and referred to in the Master Repair Services and Spare Parts Supply Agreement between Borrower and PC Service Source, Inc. "PERMITTED LIENS" means: (a) liens and security interests held by Foothill; (b) liens for unpaid taxes that are not yet due and payable; (c) liens and security interests of Fidelity as permitted in the Intercreditor Agreement; and (d) purchase money security interests and liens of lessors under capitalized leases to the extent that the acquisition or lease of the underlying asset was permitted under Section 7.11, and so long as the security interest or lien only secures the purchase price of the asset. "PLAN" means any plan described in ERISA Section 3(2) maintained for employees of Borrower or any ERISA Affiliate, other than a Multiemployer Plan. "PROHIBITED TRANSACTION" means any transaction described in Section 406 of ERISA which is not exempt by reason of Section 408 of ERISA, and any transaction described in Section 4975(c) of the IRC which is not exempt by reason of Section 4975(c)(2) of the IRC. "REFERENCE RATE" means the highest of the variable rates of interest, per annum, most recently announced by (i) Bank of America, N.T.& S.A., San Francisco, California, (ii) Mellon Bank, N.A., Pittsburgh, Pennsylvania, and (iii) Citibank, N.A., New York, New York, or any successor to any of the foregoing institutions, as its "prime rate" or "reference rate", as the case may be, whether or not such announced rate is the best rate available from such financial institution. "REPORTABLE EVENT" means a reportable event described in Section 4043 of ERISA or the regulations thereunder, a withdrawal from a Plan described in Section 4063 of ERISA, or a cessation of operations described in Section 4068(f) of ERISA. "TANGIBLE NET WORTH" means, as of the date the determination thereof is to be made, Borrower's total stockholder's equity (deficit), MINUS the intangible assets of Borrower. 1.2 ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP. When used herein, the term "financial statements" shall include the notes and schedules thereto. 1.3 CODE. Any terms used in this Agreement which are defined in the Code shall be construed and defined as set forth in the Code unless otherwise defined herein. 1.4 CONSTRUCTION. Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, and to the singular include the plural. The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. 8 Section, subsection, clause, and exhibit references are to this Agreement unless otherwise specified. 1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits attached to this Agreement shall be deemed incorporated herein by reference. 2. LOAN AND TERMS OF PAYMENT 2.1 REVOLVING ADVANCES. (a) Subject to the terms and conditions of this Agreement, and so long as no Event of Default has occurred and is continuing, Foothill agrees to make revolving advances to Borrower in an amount not to exceed the lesser of: (i) the sum of (A) the Borrowing Base and (B) until January 15, 1995, an overadvance of up to One Million Dollars ($1,000,000) which shall be reduced by the amount of all proceeds received by Foothill from the sale of Borrower's Inventory (including proceeds from sales received with respect to the PCS Escrow Agreement) (the "Overadvance"); and (ii) the Maximum Amount. For purposes of this Agreement "Borrowing Base" shall mean an amount equal to the following amounts for the following periods: PERCENTAGE OF DATE ELIGIBLE ACCOUNTS (i) The date of this Agreement 80% through December 31, 1994 (ii) January 1, 1995 through 79% January 10, 1995 (iii) January 11, 1995 through 78% January 17, 1995 (iv) January 18, 1995 through 77% January 24, 1995 (v) January 25, 1995 through 76% February 7, 1995 (vi) February 8, 1995 through 75% February 14, 1995 9 (vii) February 15, 1995 through 74% February 21, 1995 (viii) February 22, 1995 through 73% March 7, 1995 (ix) March 8, 1995 through 72% March 14, 1995 (x) March 15, 1995 through 71% March 21, 1995 (xi) March 22, 1995 through 70% December 31, 1995 (b) Notwithstanding anything to the contrary in subparagraphs (a) and (b) above, Foothill may reduce its advance rates upon an Event of Default. (c) Foothill shall have no obligation to make advances hereunder to the extent they would cause the outstanding Obligations to exceed the Maximum Amount. (d) Foothill is authorized to make advances under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Officer of Borrower or, without instructions, if in Foothill's discretion such advances are necessary to meet Obligations. Borrower agrees to establish and maintain a single designated deposit account for the purpose of receiving the proceeds of the advances requested by Borrower and made by Foothill hereunder. Unless otherwise agreed by Foothill and Borrower, any advance requested by Borrower and made by Foothill hereunder shall be made to such designated deposit account. The proceeds of the advances made under this Section 2.1 shall be used by Borrower, consistent with this Agreement, for its general working capital purposes, and capital expenditures permitted by Section 7.11 hereof. Amounts borrowed pursuant to this Section 2.1 may be repaid and reborrowed at any time during the term of this Agreement so long as no Event of Default has occurred and is continuing. 2.2 OVERADVANCES. If, at any time or for any reason, the amount of Obligations owed by Borrower to Foothill pursuant to Section 2.1 is greater than either the dollar or percentage limitations set forth in Section 2.1 Borrower shall pay to Foothill, in cash, the amount of such excess. 2.3 INTEREST: RATES, PAYMENTS, AND CALCULATIONS. (a) INTEREST RATE. All Obligations shall bear interest, on the average Daily Balance, at a rate of four and one-half (4.5) percentage points above the Reference Rate. 10 (b) DEFAULT RATE. All Obligations shall bear interest, from and after the occurrence and during the continuance of an Event of Default, at a rate equal to six and one- half (6.5) percentage points above the Reference Rate. (c) ALTERNATIVE INTEREST RATE. Notwithstanding the provisions of Section 2.3, if at any time the applicable interest rate shall exceed the Maximum Rate and thereafter the applicable interest rate shall become less than the Maximum Rate, the rate of interest payable hereunder shall, at the option of Foothill, be the Maximum Rate until the total interest paid by Borrower equals the amount which would have been paid but for the applicable interest rate having been in excess of the Maximum Rate. If at maturity of final payment of the Obligations the total amount of interest paid or accrued on the Obligations under the provisions of Section 2.3 is less than the total amount of interest which would have accrued if the applicable interest rate had at all times been in effect, then Borrower to the fullest extent permitted by law, shall pay to Lender an amount equal to the difference between (a) the amount of interest which would have accrued on the Obligations if the Maximum Rate had at all times been in effect, and (b) the amount of interest accrued in accordance with the provisions of Section 2.3. (d) INTEREST SAVINGS. It is the intention of the parties hereto to conform strictly to all usury laws applicable to this transaction. Accordingly, if the transactions contemplated hereby would be usurious under applicable law (including the laws of the United States of America or any jurisdiction whose laws may be mandatorily applicable notwithstanding the other provisions of this Agreement), then, notwithstanding anything to the contrary in this Agreement or in any other instrument or agreement entered into in connection herewith, it is agreed as follows: (i) the aggregate of all consideration which constitutes interest under applicable law that is contracted for, taken, reserved, charged, or received under this Agreement or under any other instruments or agreements or otherwise in connection herewith shall under no circumstances exceed the maximum amount allowed by such applicable law, and any excess shall be credited on the principal amount of the Obligations (or, if the principal amount of the Obligations shall have been paid in full, refunded to Borrower); and (ii) in the event that the maturity of the Obligations is accelerated for any reason under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest under applicable law may never include more than the maximum amount allowed by such applicable law, and excess interest, if any, provided for in this Agreement or otherwise shall be cancelled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited on the principal amount of the Obligations (or, if the principal amount of the Obligations shall have been repaid in full, refunded to Borrower). In determining whether or not the interest paid or payable with respect to any indebtedness of Borrower to Foothill, under any specific contingency, exceeds the highest lawful rate, Borrower and Foothill shall, to the maximum extent permitted by applicable law, (i) characterize any non-principal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof, (iii) amortize, prorate, allocate, and spread the total amount of interest throughout the full term of such indebtedness so that the actual rate of interest on account of such indebtedness does not exceed the maximum amount permitted by applicable law and/or (iv) allocate interest between portions of such indebtedness, so that no such portion shall bear interest at a rate greater than that permitted by applicable law. 11 (e) PAYMENTS. Interest hereunder shall be due and payable on the first Business Day of each calendar month during the term hereof. Foothill shall, at its option, charge such interest, all Foothill Expenses, and all installments due under any note to Borrower's loan account, which amounts shall thereafter accrue interest at the rate then applicable hereunder. Any interest not paid when due shall be compounded by becoming a part of the Obligations, and such interest shall thereafter accrue interest at the rate then applicable hereunder. Borrower shall pay Foothill all proceeds of Inventory which shall reduce the Overadvance referenced in Section 2.1(a) until such time as the outstanding balance of such Overadvance has been fully paid, but in any event, all amounts owing under Section 2.1(a) shall be paid on or before January 17, 1995. (f) COMPUTATION. The Reference Rate as of this date is eight and one-half percent (8.5%) per annum. In the event the Reference Rate is changed from time to time hereafter, the applicable rate of interest hereunder automatically and immediately shall be increased or decreased by an amount equal to the Reference Rate change. The rates of interest charged hereunder shall be based upon the average Reference Rate in effect during the month. All interest and fees chargeable under the Loan Documents shall be computed on the basis of a three hundred sixty (360) day year for the actual number of days elapsed. 2.4 CREDITING PAYMENTS. The receipt of any wire transfer of funds, check, or other item of payment by Foothill shall be immediately applied to conditionally reduce the Obligations, but shall not be considered a payment on account unless such wire transfer is of immediately available federal funds and is made to the appropriate deposit account of Foothill or unless and until such check or other item of payment is honored when presented for payment. For interest calculation purposes, all checks, wire transfers, or other items of payment to Foothill shall be deemed to have been paid to Foothill two (2) Business Day(s) after the date Foothill actually receives such wire transfer of immediately available federal funds, or two (2) Business Day(s) after Foothill actually receives possession of such check or other item of payment. This calculation shall apply irrespective of Borrower's Obligations to Foothill. Should such check or item of payment not be honored when presented for payment, then, Borrower shall be deemed not to have made such payment, and interest shall be recalculated accordingly. Anything to the contrary contained herein notwithstanding, any wire transfer, check, or other item of payment received by Foothill after 11:00 a.m. Los Angeles time shall be deemed to have been received by Foothill as of the opening of business on the immediately following Business Day. 2.5 STATEMENTS OF OBLIGATIONS. Foothill shall render statements to Borrower of the Obligations, including principal, interest, fees, and Foothill Expenses owing, and such statements shall be conclusively presumed to be correct and accurate and constitute an account stated between Borrower and Foothill unless, within sixty (60) days after receipt thereof by Borrower, Borrower shall deliver to Foothill by registered or certified mail at its address specified in Section 12, written objection thereto describing the error or errors contained in any such statements. 2.6 FEES. Borrower shall pay to Foothill the following fees: 12 (a) CLOSING FEE. The following amounts, each of which shall be fully earned when paid: (i) Twenty-Five Thousand Dollars ($25,000) payable on the Closing Date; (ii) Twenty-Five Thousand Dollars ($25,000) on April 1, 1995; and (iii) Twenty-Five Thousand Dollars ($25,000) on July 1, 1995; PROVIDED, HOWEVER, that in the event all Obligations of Borrower are paid in full and this Agreement is terminated prior to any of the dates set forth in clauses (ii) or (iii) above for the payment of any installment of the fees pursuant to this Section 2.6(a), no payment of such installment of fees shall be due and owing. (b) UNUSED LINE FEE. On the first Business Day of each calendar month during the term of this Agreement, a fee in an amount equal to one-half of one percent (0.5%) per annum times the Average Unused Portion of the Maximum Amount; (c) FINANCIAL EXAMINATION, DOCUMENTATION AND APPRAISAL FEES. Foothill's customary fee of Six Hundred Fifty Dollars ($650) per day per examiner, plus out-of-pocket expenses for each financial analysis and examination of Borrower performed by Foothill or its agents; Foothill's customary appraisal fee of One Thousand Dollars ($1,000) per day per appraiser, plus out-of-pocket expenses for each appraisal of the Collateral performed by Foothill or its agents; and Foothill's customary fee of One Thousand Dollars ($1,000) per year for its loan documentation review. 3. CONDITIONS TO EFFECTIVENESS; TERM OF AGREEMENT 3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of Foothill to be obligated hereunder is subject to the fulfillment, to the satisfaction of Foothill and its counsel, of each of the following conditions on or before the Closing Date. (a) the Closing Date shall occur on or before December 10, 1994; (b) receipt from Borrower or Fidelity on account of Borrower of the difference between the Obligations owing to Foothill on the Closing Date and the amount which Borrower has available to borrow under Section 2.1(a) of this Agreement; (c) confirmation that Borrower has completed its obligations under the Reorganization Plan and Order which are required to be completed on or before the effective date of the Reorganization Plan pursuant to Article VIII of the Reorganization Plan; 13 (d) the execution of a loan and security agreement, and any other documents required to be executed in connection therewith, by and between Borrower and Fidelity pursuant to which financing will be provided by Fidelity to Foothill in an amount not to exceed Six Million Dollars ($6,000,000); (e) the execution of an Intercreditor Agreement among Foothill, Borrower and Fidelity; and (f) all other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered or executed or recorded and shall be in form and substance satisfactory to Foothill and its counsel. 3.2 TERM. This Agreement shall become effective upon the execution and delivery hereof by Borrower and Foothill and shall continue in full force and effect for a term ending on December 31, 1995. The foregoing notwithstanding, Foothill shall have the right to terminate its obligations under this Agreement immediately and without notice upon the occurrence of an Event of Default. 3.3 EFFECT OF TERMINATION. On the date of termination, all Obligations shall become immediately due and payable without notice or demand. No termination of this Agreement, however, shall relieve or discharge Borrower of Borrower's duties, Obligations, or covenants hereunder, and Foothill's continuing security interest in the Collateral shall remain in effect until all Obligations have been fully discharged and Foothill's obligation to provide advances hereunder is terminated. 3.4 EARLY TERMINATION BY BORROWER. Borrower has the option to terminate this Agreement by paying to Foothill, in cash, the Obligations. 4. CREATION OF SECURITY INTEREST 4.1 GRANT OF SECURITY INTEREST. Borrower hereby reaffirms its prior grants and grants to Foothill a continuing security interest in all currently existing and hereafter acquired or arising Collateral in order to secure prompt repayment of any and all Obligations and in order to secure prompt performance by Borrower of each of its covenants and duties under the Loan Documents. Foothill's security interest in the Collateral shall attach to all Collateral without further act on the part of Foothill or Borrower. 4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral, including proceeds, is evidenced by or consists of Negotiable Collateral, Borrower shall, immediately upon the request of Foothill, endorse and assign such Negotiable Collateral to Foothill and deliver physical possession of such Negotiable Collateral to Foothill. 4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, NEGOTIABLE COLLATERAL. Foothill, Borrower, and a bank that is acceptable to Foothill have heretofore entered into a 14 lockbox agreement, in form and substance satisfactory to Foothill in its sole discretion pursuant to which all of Borrower's cash receipts, checks, and other items of payment will be forwarded to Foothill on a daily basis. At any time, Foothill or Foothill's designee may: (a) notify customers or Account Debtors of Borrower that the Accounts, General Intangibles, or Negotiable Collateral have been assigned to Foothill or that Foothill has a security interest therein; (b) collect the Accounts, General Intangibles, and Negotiable Collateral directly and charge the collection costs and expenses to Borrower's loan account. Borrower agrees that it will hold in trust for Foothill, as Foothill's trustee, any cash receipts, checks, and other items of payment that it receives on account of the Accounts, General Intangibles, or Negotiable Collateral and immediately will deliver said cash receipts, checks, and other items of payment to Foothill in their original form as received by Borrower. 4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower has executed and delivered to Foothill (and hereby reaffirms), prior to or concurrently with Borrower's execution and delivery of this Agreement and at any time thereafter at the request of Foothill, all financing statements, continuation financing statements, fixture filings, security agreements, chattel mortgages, pledges, assignments, endorsements of certificates of title, applications for title, affidavits, reports, notices, schedules of accounts, letters of authority, and all other documents that Foothill may reasonably request, in form satisfactory to Foothill, to perfect and continue perfected Foothill's security interests in the Collateral and in order to fully consummate all of the transactions contemplated under the Loan Documents. 4.5 POWER OF ATTORNEY. Borrower hereby irrevocably makes, constitutes, and appoints Foothill (and any of Foothill's officers, employees, or agents designated by Foothill) as Borrower's true and lawful attorney, with power to: (a) sign the name of Borrower on any of the documents described in Section 4.4 or on any other similar documents to be executed, recorded, or filed in order to perfect or continue perfected Foothill's security interest in the Collateral; (b) sign Borrower's name on any invoice or bill of lading relating to any Account, drafts against Account Debtors, schedules and assignments of Accounts, verifications of Accounts, and notices to Account Debtors; (c) send requests for verification of Accounts; (d) endorse Borrower's name on any checks, notices, acceptances, money orders, drafts, or other item of payment or security that may come into Foothill's possession; (e) at any time that an Event of Default has occurred or Foothill deems itself insecure, notify the post office authorities to change the address for delivery of Borrower's mail to an address designated by Foothill, to receive and open all mail addressed to Borrower, and to retain all mail relating to the Collateral and promptly forward all other mail and copies of all mail retained to Borrower; (f) at any time that an Event of Default has occurred or Foothill deems itself insecure, make, settle, and adjust all claims under Borrower's policies of insurance and make all determinations and decisions with respect to such policies of insurance; and (g) at any time that an Event of Default has occurred or Foothill deems itself insecure, settle and adjust disputes and claims respecting the Accounts directly with Account Debtors, for amounts and upon terms which Foothill determines to be reasonable, and Foothill may cause to be executed and delivered any documents and releases which Foothill determines to be necessary. The appointment of Foothill as Borrower's attorney, and each and every one of Foothill's rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully repaid and performed and Foothill's obligation to provide advances hereunder is terminated. 15 4.6 RIGHT TO INSPECT. Foothill (through any of its officers, employees, or agents) shall have the right, from time to time hereafter during Borrower's usual business hours, or during the usual business hours of any third party having control over the records of Borrower to inspect Borrower's Books and to check, test, and appraise the Collateral in order to verify Borrower's financial condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral. 5. REPRESENTATIONS AND WARRANTIES Borrower represents and warrants as follows: 5.1 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title to the Collateral, free and clear of liens, claims, security interests, or encumbrances except for Permitted Liens. 5.2 ELIGIBLE ACCOUNTS. The Eligible Accounts are, and at all times, hereafter shall be, bona fide existing obligations created by the sale and delivery of Inventory or the rendition of services to Account Debtors in the ordinary course of Borrower's business, unconditionally owed to Borrower without defenses, disputes, offsets, counterclaims, or rights of return or cancellation. The property or services giving rise to such Eligible Accounts has been delivered to or performed for the Account Debtor, or to the Account Debtor's agent for immediate shipment to and unconditional acceptance by the Account Debtor. Borrower has not, and at all times hereafter, shall not have, received notice of actual or imminent bankruptcy, insolvency, or financial embarrassment of any Account Debtor at the time an Account due from such Account Debtor is created. 5.3 LOCATION OF INVENTORY AND EQUIPMENT. Except for items being repaired in the ordinary course of Borrower's business, the Inventory and Equipment are not now and shall not at any time hereafter be stored with a bailee, warehouseman, or similar party without Foothill's prior written consent. Until Foothill shall have given its written consent, Borrower shall keep the Inventory and Equipment only at the locations set forth on Schedule 5.4 attached hereto. 5.4 LOCATION OF CHIEF EXECUTIVE OFFICE. The chief executive office of Borrower is located at the address indicated in the first paragraph of this Agreement and Borrower covenants and agrees that it will not, without thirty (30) days prior written notification to Foothill, relocate such chief executive office. 5.5 DUE ORGANIZATION AND QUALIFICATION. Borrower is and shall at all times hereafter be duly organized and existing and in good standing under the laws of the state of its incorporation and qualified and licensed to do business in, and in good standing in, any state in which the conduct of its business or its ownership of property requires that it be so qualified. 5.6 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and performance of the Loan Documents are within Borrower's corporate powers, have been duly 16 authorized, and are not in conflict with nor constitute a breach of any provision contained in Borrower's Articles or Certificate of Incorporation, or By-laws, nor will they constitute an event of default under any material agreement to which Borrower is now or may hereafter become a party. 5.7 LITIGATION. Except as set forth on Schedule 5.7 attached hereto, there are no actions or proceedings pending by or against Borrower before any court or administrative agency and Borrower does not have knowledge or belief of any pending, threatened, or imminent litigation, governmental investigations, or claims, complaints, actions, or prosecutions involving Borrower or any guarantor of the Obligations, except for ongoing collection matters in which the Borrower is the plaintiff. If any of the foregoing arises during the term of this Agreement, Borrower shall promptly notify Foothill in writing. 5.8 NO MATERIAL ADVERSE CHANGE IN FINANCIAL CONDITION. All financial statements relating to Borrower or any guarantor of the Obligations that have been or may hereafter be delivered by Borrower to Foothill have been prepared in accordance with GAAP and fairly present Borrower's financial condition as of the date thereof and Borrower's results of operations for the period then ended. There has not been a material adverse change in the financial condition of Borrower or any guarantor since the date of the latest financial statements submitted to Foothill on or before the Closing Date. 5.9 SOLVENCY. Borrower is able to pay all of its debts (including trade debts and contingent liabilities) as they become due. 5.10 ERISA. The Intelogic Trace, Inc. Retirement Income Plan (the "Intelogic Plan") was terminated by the Pension Benefit Guaranty Corporation effective as of November 21, 1994, as disclosed on Schedule 5.10 attached hereto. Except for the Intelogic Plan, neither the Borrower nor any ERISA Affiliate maintains or contributes to any pension plan subject to Title IV of ERISA. The Borrower and its ERISA Affiliates are in material compliance with the provisions of ERISA and the qualification requirements of Section 401(a) of the IRC and any regulations thereunder with respect to any Plan intended to constitute a qualified plan under Section 401(a) of the IRC. No Prohibited Transaction has occurred with respect to a Plan. Except with respect to the Intelogic Plan, Borrower and its ERISA Affiliates have made all contributions required to be made by them to any Plan when due. 5.11 ENVIRONMENTAL CONDITION. Except as to cleaning material and solutions and packing materials used or repaired in Borrower's ordinary course of business, none of Borrower's properties or assets has ever been used by Borrower or, to the best of Borrower's knowledge, by previous owners or operators in the disposal of, or to produce, store, handle, treat, release, or transport, any hazardous waste or hazardous substance. None of Borrower's properties or assets has ever been designated or identified in any manner pursuant to any environmental protection statute as a hazardous waste or hazardous substance disposal site, or a candidate for closure pursuant to any environmental protection statute. No lien arising under any environmental protection statute has attached to any revenues or to any real or personal property owned or operated by Borrower. Borrower has not received a summons, citation, notice, or directive from the Environmental Protection Agency or any 17 other federal or state governmental agency concerning any action or omission by Borrower resulting in the releasing or otherwise disposing of hazardous waste or hazardous substances into the environment. 5.12 PATENTS, COPYRIGHTS AND TRADEMARKS. Except as set forth on Schedule 5.12 attached hereto, Borrower has no registered trademarks or copyrights and has not applied for or been issued any patents by any governmental authority or instrumentality hereof. 5.13 RELIANCE BY FOOTHILL; CUMULATIVE. Each warranty and representation contained in this Agreement shall be automatically deemed repeated with each advance and shall be conclusively presumed to have been relied on by Foothill regardless of any investigation made or information possessed by Foothill. The warranties and representations set forth herein shall be cumulative and in addition to any and all other warranties and representations that Borrower shall now or hereinafter give, or cause to be given, to Foothill. 5.14 PRIOR AGREEMENTS. Except as modified by this Agreement, the GLSA and DIP Loan are valid, binding and enforceable agreements in accordance with their respective terms and are reaffirmed in full. 5.15 BANKRUPTCY MATTERS. The Reorganization Plan and Order are final and non-appealable. 6. AFFIRMATIVE COVENANTS Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the Obligations, and unless Foothill shall otherwise consent in writing, Borrower shall do all of the following: 6.1 ACCOUNTING SYSTEM. Borrower at all times hereafter shall maintain a standard and modern system of accounting in accordance with GAAP with ledger and account cards or computer tapes, discs, printouts, and records pertaining to the Collateral which contain information as from time to time may be requested by Foothill. Borrower shall also keep proper books of account showing all sales and claims. 6.2 COLLATERAL REPORTS. Borrower shall deliver to Foothill, no later than the tenth (10th) day of each month during the term of this Agreement, a detailed aging, by total, of the Accounts, a reconciliation statement, and a summary aging, by vendor, of all accounts payable and any book overdraft and no later than the thirtieth (30th) day of each month during the term of this Agreement, a certificate signed by Borrower's chief financial officer or corporate treasurer calculating the Adjusted Service Value (see Schedule 6.2 attached hereto). Original sales invoices evidencing daily sales shall be mailed by Borrower to each Account Debtor with a copy to Foothill upon Foothill's request and, at such time as either an event of default has occurred or Foothill determines that a material impairment of the prospect of repayment of any portion of the Obligations or of the value of priority of 18 Foothill's security interest in the Collateral has occurred or is imminently likely to occur at Foothill's direction, the invoices shall indicate on their face that the Account has been assigned to Foothill and that all payments are to be made directly to Foothill. Borrower shall deliver to Foothill, as Foothill may from time to time reasonably require, collection reports, sales journals, invoices, original delivery receipts, customer's purchase orders, shipping instructions, bills of lading, and other documentation respecting shipment arrangements. Absent such a request by Foothill, copies of all such documentation shall be held by Borrower as custodian for Foothill. 6.3 SCHEDULES OF ACCOUNTS. With such regularity as Foothill shall require, Borrower shall provide Foothill with schedules describing all Accounts. Foothill's failure to request such schedules or Borrower's failure to execute and deliver such schedules shall not affect or limit Foothill's security interest or other rights in and to the Accounts. 6.4 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower agrees to deliver to Foothill: (a) as soon as available, but in any event within thirty (30) days after the end of each fiscal month, except the third month of each fiscal quarter within forty-five (45) days after the end of each fiscal month during each of Borrower's fiscal years, a company prepared balance sheet, income statement, and cash flow statement covering Borrower's operations during such period; and (b) as soon as available, but in any event within ninety (90) days after the end of each of Borrower's fiscal years, financial statements of Borrower for each such fiscal year, audited by independent certified public accountants reasonably acceptable to Foothill and certified, without any qualifications, by such accountants to have been prepared in accordance with GAAP, together with a certificate of such accountants addressed to Foothill stating that such accountants do not have knowledge of the existence of any event or condition constituting an Event of Default, or that would, with the passage of time or the giving of notice, constitute an Event of Default. Such audited financial statements shall include a balance sheet, profit and loss statement, and cash flow statement, and such accountants' opinion letter to management. Borrower shall have issued written instructions to its independent certified public accountants, authorizing them to communicate with Foothill and to release to Foothill whatever financial information concerning Borrower that Foothill may request. If Borrower is a parent company of one or more subsidiaries, or affiliates, or is a subsidiary or affiliate of another company, then, in addition to the financial statements referred to above, Borrower agrees to deliver financial statements prepared on a consolidating basis so as to present Borrower and each such related entity separately, and on a consolidated basis. Together with the above, Borrower shall also deliver to Foothill Borrower's Form 10-Q Quarterly Reports, Form 10-K Annual Reports, and Form 8-K Current Reports, and any other filings made by Borrower with the Securities and Exchange Commission, if any, as soon as the same are filed, or any other information that is provided by Borrower to its shareholders, and any other report reasonably requested by Foothill relating to the Collateral and financial condition of Borrower. Each month, Borrower shall deliver to Foothill a certificate signed by its chief financial officer to the effect that: (a) all reports, statements, or computer prepared information of any kind or nature delivered or caused to be delivered to Foothill hereunder 19 have been prepared in accordance with GAAP and fully and fairly present the financial condition of Borrower; (b) Borrower is in timely compliance with all representations, warranties, and covenants hereunder; and (c) on the date of delivery of such certificate to Foothill there does not exist any condition or event which constitutes an Event of Default. Borrower hereby irrevocably authorizes and directs all auditors, accountants, or other third parties to deliver to Foothill, at Borrower's expense, copies of Borrower's financial statements, papers related thereto, and other accounting records of any nature in their possession, and to disclose to Foothill any information they may have regarding Borrower's business affairs and financial conditions. 6.5 TAX RETURNS. Borrower agrees to deliver to Foothill copies of each of Borrower's future federal income tax returns, and any amendments thereto, within thirty (30) days of the filing thereof with the Internal Revenue Service. 6.6 RETURNS AND ALLOWANCES. Returns and allowances, if any, as between Borrower and its Account Debtors shall be on the same basis and in accordance with the usual customary practices of Borrower, as they exist at the time of the execution and delivery of this Agreement. 6.7 MAINTENANCE OF EQUIPMENT. Borrower shall keep and maintain the Equipment in good operating condition and repair, and make all necessary replacements thereto so that the value and operating efficiency thereof shall at all times be maintained and preserved. Borrower shall not permit any item of Equipment to become a fixture to real estate or an accession to other property, and the Equipment is now and shall at all times remain personal property. 6.8 TAXES. All assessments and taxes, whether real, personal, or otherwise, due or payable by, or imposed, levied, or assessed against Borrower or any of its property have been paid, and shall hereafter be paid in full, before delinquency or before the expiration of any extension period. Borrower shall make due and timely payment or deposit of all federal, State, and local taxes, assessments, or contributions required of it by law, and will execute and deliver to Foothill, on demand, appropriate certificates attesting to the payment or deposit thereof. Borrower will make timely payment or deposit of all tax payments and withholding taxes required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., State disability, and local, State, and federal income taxes, and will, upon request, furnish Foothill with proof satisfactory to Foothill indicating that Borrower has made such payments or deposits. 6.9 INSURANCE. (a) Borrower, at its expense, shall keep the Collateral insured against loss or damage by fire, theft, explosion, sprinklers, and all other hazards and risks, and in such amounts, as ordinarily insured against by other owners in similar businesses. Borrower also shall maintain business interruption, public liability, product liability, and property damage insurance relating to Borrower's ownership and use of the Collateral, as well as insurance against larceny, embezzlement, and criminal misappropriation. 20 (b) All such policies of insurance shall be in such form, with such companies, and in such amounts as may be satisfactory to Foothill. All such policies of insurance (except those of public liability and property damage) shall contain a 438BFU lender's loss payable endorsement, or an equivalent endorsement in a form satisfactory to Foothill, showing Foothill and Fidelity as co-loss payees thereof, and shall contain a waiver of warranties, and shall specify that the insurer must give at least ten (10) days prior written notice to Foothill before canceling its policy for any reason. Borrower shall deliver to Foothill certified copies of such policies of insurance and evidence of the payment of all premiums therefor or certificates evidencing the same. All proceeds payable under any such policy shall be payable to Foothill and Fidelity to be applied on account of the Obligations. 6.10 FOOTHILL EXPENSES. Borrower shall immediately and without demand reimburse Foothill for all sums expended by Foothill which constitute Foothill Expenses and Borrower hereby authorizes and approves all advances and payments by Foothill for items constituting Foothill Expenses. 6.11 FINANCIAL COVENANTS. Borrower shall maintain: (a) CURRENT RATIO. An amount equal to seventy-five percent (75%) of the ratio of Borrower's current assets divided by Borrower's current liabilities based on the amount of Borrower's current assets and current liabilities indicated on the balance sheet which shall be prepared in connection with the Case to indicate Borrower's financial condition on the effective date of the Reorganization Plan, measured on a monthly basis. (b) TANGIBLE NET WORTH. A Tangible Net Worth at all times which shall not decrease by an amount in excess of Five Hundred Thousand Dollars ($500,000) from the Tangible Net Worth calculated using the amounts indicated on the balance sheet which shall be prepared in connection with the Case to indicate Borrower's financial condition as of the effective date of the Reorganization Plan, measured on a monthly basis. (c) EBITDA. Borrower shall achieve and EBITDA of not less than One Hundred Fifty Thousand Dollars ($150,000) per fiscal quarter. 6.12 NO SETOFFS OR COUNTERCLAIMS. All payments hereunder and under the other Loan Documents made by or on behalf of Borrower shall be made without setoff or counterclaim and free and clear of, and without deduction or withholding for or on account of, any federal, State or local taxes. 7. NEGATIVE COVENANTS Borrower covenants and agrees that, so long as any credit hereunder shall be available and until payment in full of the Obligations, Borrower will not do any of the following without Foothill's prior written consent: 7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or otherwise become or remain, directly or indirectly, liable with respect to any Indebtedness, except: 21 (a) Indebtedness evidenced by this Agreement; (b) Indebtedness set forth in the latest financial statements of Borrower submitted to Foothill on or prior to the Closing Date; (c) Indebtedness secured by Permitted Liens; and (d) refinancing, renewals, or extensions of Indebtedness permitted under clauses (b) and (c) of this Section 7.1 (and continuance or renewal of any Permitted Liens associated therewith) so long as: (i) the terms and conditions of such refinancing, renewals, or extensions do not materially impair the prospects of repayment of the Obligations by Borrower, (ii) the net cash proceeds of such refinancing, renewals, or extensions do not result in an increase in the aggregate principal amount of the Indebtedness so refinanced, renewed, or extended, and (iii) such refinancing, renewals, refundings, or extensions do not result in a shortening of the average weighted maturity of the Indebtedness so refinanced, renewed, or extended. 7.2 LIENS. Create, incur, assume, or permit to exist, directly or indirectly, any lien on or with respect to any of its property or assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens (including Permitted Liens that are continued or renewed as permitted under Section 7.1(d)). 7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES. Except as contemplated by the Reorganization Plan, enter into any merger, consolidation, reorganization, or recapitalization, or reclassify its capital stock, or liquidate, wind up, or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, assign, lease, transfer, or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its business, property, or assets, whether now owned or hereafter acquired, or acquire by purchase or otherwise all or substantially all the assets, stock, or other evidence of beneficial ownership of any person or entity. 7.4 EXTRAORDINARY TRANSACTIONS AND DISPOSAL OF ASSETS. Enter into any transaction not in the ordinary and usual course of Borrower's business, including, but not limited to, the sale, lease, or other disposition of, moving, relocation, or transfer, whether by sale or otherwise, of any of Borrower's assets (other than sales of Inventory in the ordinary and usual course of Borrower's business as currently conducted or as approved by Foothill prior to such sale), or the making of any advance or loan except in the ordinary course of business as currently conducted. 7.5 CHANGE NAME. Change Borrower's name, business structure, or identity, or add any new fictitious name. 7.6 MERGE, ACQUIRE. Acquire, merge, or consolidate with or into any other business organization. 22 7.7 GUARANTEE. Guarantee or otherwise become in any way liable with respect to the obligations of any third party except by endorsement or instruments or items of payment for deposit to the account of Borrower or which are transmitted or turned over to Foothill. 7.8 RESTRUCTURE. Make any change in Borrower's financial structure, the principal nature of Borrower's business operations, or the date of its fiscal year. 7.9 PREPAYMENTS. Except as permitted by the Intercreditor Agreement, prepay any Indebtedness owing to any third party. 7.10 CHANGE OF CONTROL. Except such Change of Control as is contemplated by Borrower's Reorganization Plan and Order, cause, permit, or suffer any Change of Control. 7.11 CAPITAL EXPENDITURES. Make any plant or fixed capital expenditure, or any commitment therefor, or purchase or lease any real or personal property or replacement Equipment subject to a purchase money security interest, trust deed or lease, in excess of One Hundred Thousand Dollars ($100,000) for any individual transaction or where the aggregate amount of such transactions, in any fiscal year, is in excess of Five Hundred Thousand Dollars ($500,000). 7.12 DISTRIBUTIONS. Except as contemplated by the Reorganization Plan, make any distribution or declare or pay any dividends (in cash or in stock) on, or purchase, acquire, redeem, or retire any of Borrower's capital stock, of any class, whether now or hereafter outstanding. 7.13 ACCOUNTING METHODS. Modify or change its method of accounting or enter into, modify, or terminate any agreement currently existing, or at any time hereafter entered into with any third party accounting firm or service bureau for the preparation or storage of Borrower's accounting records without said accounting firm or service bureau agreeing to provide Foothill information regarding the Collateral or Borrower's financial condition. Borrower waives the right to assert a confidential relationship, if any, it may have with any accounting firm or service bureau in connection with any information requested by Foothill pursuant to or in accordance with this Agreement, and agrees that Foothill may contact directly any such accounting firm or service bureau in order to obtain such information. 7.14 INVESTMENTS. Directly or indirectly make or own any beneficial interest in (including stock, partnership interest, or other securities of), or make any loan, advance, or capital contribution to, any corporation, association, person, or entity; PROVIDED, HOWEVER, that after the Closing Date, Borrower may continue to own any beneficial interest in (including stock, partnership interest, or other securities of) any corporation, association, person, or entity which was owned by Borrower as of the Closing Date. 7.15 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or permit to exist any material transaction with any person or entity controlling, controlled by, or 23 under common control (whether by contract, ownership of voting securities, or otherwise) with Borrower except for transactions that are in the ordinary course of Borrower's business, upon fair and reasonable terms, and that are fully disclosed to Foothill and no less favorable to Borrower than would be obtained in arm's length transaction with a non-affiliated person or entity. 7.16 SUSPENSION. Suspend or go out of a substantial portion of its business. 7.17 COMPENSATION. Increase total maximum compensation to officers, directors, employees, and other relevant individuals by more than fifteen percent (15%) per annum. 8. EVENTS OF DEFAULT Any one or more of the following events shall constitute an event of default (each, an "Event of Default") under this Agreement: 8.1 If Borrower fails to pay when due and payable or when declared due and payable, any portion of the Obligations (whether of principal, interest (including any interest which, but for the provisions of the United States Bankruptcy Code, would have accrued on such amounts), fees and charges due Foothill, taxes, reimbursement of Foothill Expenses, or otherwise); 8.2 If Borrower fails or neglects to perform, keep, or observe any term, provision, condition, covenant, or agreement contained in this Agreement, in any of the Loan Documents, under the Reorganization Plan and Order or in any other present or future agreement between Borrower and Foothill; 8.3 If there is material impairment of the prospect of repayment of any portion of the Obligations owing to Foothill or a material impairment of the value or priority of Foothill's security interests in the Collateral; 8.4 If any material portion of Borrower's assets is attached, seized, subjected to a writ or distress warrant, or is levied upon, or comes into the possession of any Judicial Officer or Assignee; 8.5 If an Insolvency Proceeding is commenced by Borrower; 8.6 If an Insolvency Proceeding is commenced against Borrower and remains undismissed for twenty (20) days (during which time Foothill shall have no obligations to make advances to Borrower hereunder); 8.7 If Borrower is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its business affairs; 24 8.8 If a notice of lien, levy, or assessment is filed of record with respect to any of Borrower's assets by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, or if any taxes or debts owing at any time hereafter to any one or more of such entities becomes a lien, whether choate or otherwise, upon any of Borrower's assets and the same is not paid on the payment date thereof; 8.9 If a judgment or other claim becomes a lien or encumbrance; 8.10 If there is a default in any material agreement to which Borrower is a party with third parties resulting in a right by such third parties, whether or not exercised, to accelerate the maturity of Borrower's Indebtedness thereunder; 8.11 If Borrower makes any payment on account of Indebtedness that has been subordinated to the Obligations except to the extent such payment is allowed under any subordination agreement entered into with Foothill; 8.12 If any misstatement or misrepresentation exists now or hereafter in any warranty, representation, statement, or report made to Foothill by Borrower or any officer, employee, agent, or director of Borrower, or if any such warranty or representation is withdrawn by any officer or director; 8.13 If the obligation of any guarantor or other third party under any loan document is limited or terminated by operation of law or by the guarantor or other third party thereunder, or any guarantor or other third party becomes the subject of an Insolvency Proceeding; 8.14 If a Prohibited Transaction or Reportable Event shall occur with respect to a Plan which could have a material adverse effect on the financial condition of Borrower; if any lien upon the assets of Borrower in connection with any Plan shall arise; if Borrower or any ERISA Affiliate shall completely or partially withdraw from a Multiemployer Plan or Multiple Employer Plan of which Borrower or such ERISA Affiliate was a substantial employer, and such withdrawal could, in the opinion of Foothill, have a material adverse effect on the financial condition of Borrower; if Borrower or any of its ERISA Affiliates shall fail to make full payment when due of all amounts which Borrower or any of its ERISA Affiliates may be required to pay to any Plan or any Multiemployer Plan as one or more contributions thereto; if Borrower or any of its ERISA Affiliates creates or permits the creation of any accumulated funding deficiency, whether or not waived; or upon the voluntary or involuntary termination of any Plan which termination could, in the opinion of Foothill, have a material adverse effect on the financial condition of Borrower; or Borrower shall fail to notify Foothill promptly and in any event within ten (10) days of the occurrence of any event that constitutes an Event of Default under this clause or would constitute such an Event of Default upon the exercise of Foothill's judgment; and 8.15 If any writing, document, aging, certificate or other evidence of the Accounts or Inventory shall be materially incomplete, incorrect, or misleading at the time the same is furnished to Foothill. 25 9. FOOTHILL'S RIGHTS AND REMEDIES 9.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event of Default Foothill may, at its election, without notice of its election and without demand, do any one or more of the following, all of which are authorized by Borrower: (a) Declare all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable; (b) Cease advancing money or extending credit to or for the benefit of Borrower under this Agreement, under any of the Loan Documents, or under any other agreement between Borrower and Foothill; (c) Terminate this Agreement and any of the other Loan Documents as to any future liability or obligation of Foothill, but without affecting Foothill's rights and security interest in the Collateral and without affecting the Obligations; (d) Settle or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Foothill considers advisable, and in such cases, Foothill will credit Borrower's loan account with only the net amounts received by Foothill in payment of such disputed Accounts after deducting all Foothill Expenses incurred or expended in connection therewith; (e) Without notice to or demand upon Borrower or any guarantor, make such payments and do such acts as Foothill considers necessary or reasonable to protect its security interest in the Collateral. Borrower agrees to assemble the Collateral if Foothill so requires, and to make the Collateral available to Foothill as Foothill may designate. Borrower authorizes Foothill to enter the premises where the Collateral is located, to take and maintain possession of the Collateral, or any part of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or lien that in Foothill's determination appears to be prior or superior to its security interest and to pay all expenses incurred in connection therewith. With respect to any of Borrower's owned premises, Borrower hereby grants Foothill a license to enter into possession of such premises and to occupy the same, without charge, for up to one hundred twenty (120) days in order to exercise any of Foothill's rights or remedies provided herein, at law, in equity, or otherwise; (f) Without notice to Borrower (such notice being expressly waived) set off and apply to the Obligations any and all (i) balances and deposits of Borrower held by Foothill, or (ii) indebtedness at any time owing to or for the credit or the account of Borrower held by Foothill; (g) Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Collateral. Foothill is hereby granted a license or other right to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in 26 completing production of, advertising for sale, and selling any Collateral and Borrower's rights under all licenses and all franchise agreements shall inure to Foothill's benefit; (h) Sell the Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such manner and at such places (including Borrower's premises) as Foothill determines is commercially reasonable. It is not necessary that the Collateral be present at any such sale; (i) Foothill shall give notice of the disposition of the Collateral as follows: (1) Foothill shall give Borrower and each holder of a security interest in the Collateral who has filed with Foothill a written request for notice, a notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Collateral, then the time on or after which the private sale or other disposition is to be made; (2) The notice shall be personally delivered or mailed, postage prepaid, to Borrower as provided in Section 12, at least five (5) calendar days before the date fixed for the sale, or at least five (5) calendar days before the date on or after which the private sale or other disposition is to be made, unless the Collateral is perishable or threatens to decline speedily in value. Notice to persons other than Borrower claiming an interest in the Collateral shall be sent to such addresses as they have furnished to Foothill; (3) If the sale is to be a public sale, Foothill also shall give notice of the time and place by publishing a notice one time at least five (5) calendar days before the date of the sale in a newspaper of general circulation in the county in which the sale is to be held; (j) Foothill may credit bid and purchase at any public sale; and (k) Any deficiency that exists after disposition of the Collateral as provided above will be paid immediately by Borrower. Any excess will be returned, without interest and subject to the rights of third parties, by Foothill to Borrower. 9.2 REMEDIES CUMULATIVE. Foothill's rights and remedies under this Agreement, the Loan Documents, and all other agreements shall be cumulative. Foothill shall have all other rights and remedies not inconsistent herewith as provided under the Code, by law, or in equity. No exercise by Foothill of one right or remedy shall be deemed an election, and no waiver by Foothill of any Event of Default shall be deemed a continuing waiver. No delay by Foothill shall constitute a waiver, election, or acquiescence by it. 27 10. TAXES AND EXPENSES REGARDING THE COLLATERAL If Borrower fails to pay any monies (whether taxes, rents, assessments, insurance premiums, or otherwise) due to third persons or entities, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, to the extent that Foothill determines that such failure by Borrower could have a material adverse effect on Foothill's interests in the Collateral, in its discretion and without prior notice to Borrower, Foothill may do any or all of the following: (a) make payment of the same or any part thereof; (b) set up such reserves in Borrower's loan account as Foothill deems necessary to protect Foothill from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type described in Section 6.12, and take any action with respect to such policies as Foothill deems prudent. Any amounts paid or deposited by Foothill shall constitute Foothill Expenses, shall be immediately charged to Borrower's loan account and become additional Obligations, shall bear interest at the then applicable rate hereinabove provided, and shall be secured by the Collateral. Any payments made by Foothill shall not constitute an agreement by Foothill to make similar payments in the future or a waiver by Foothill of any Event of Default under this Agreement. Foothill need not inquire as to, or contest the validity of, any such expense, tax, security interest, encumbrance, or lien and the receipt of the usual official notice for the payment thereof shall be conclusive evidence that the same was validly due and owing. 11. WAIVERS; INDEMNIFICATION 11.1 DEMAND; PROTEST; ETC. Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees at any time held by Foothill on which Borrower may in any way be liable. 11.2 FOOTHILL'S LIABILITY FOR INVENTORY OR EQUIPMENT. So long as Foothill complies with its obligations, if any, under Section 9207 of the Code, Foothill shall not in any way or manner be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage thereto occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of loss, damage, or destruction of the Collateral shall be borne by Borrower. 11.3 INDEMNIFICATION. Borrower agrees to indemnify Foothill and its officers, employees, and agents and hold Foothill harmless against: (a) all obligations, demands, claims, and liabilities claimed or asserted by any other party, and (b) all losses in any way suffered, incurred, or paid by Foothill as a result of or in any way arising out of, following, or consequential to transactions with Borrower whether under this Agreement, or otherwise. This provision shall survive the termination of this Agreement. 12. NOTICES 28 Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection therewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail, postage prepaid, return receipt requested, or by prepaid telex, TWX, telefacsimile, or telegram (with messenger delivery specified) to Borrower or to Foothill, as the case may be, at its addresses set forth below: If to Borrower: INTELOGIC TRACE, INC. Turtle Creek Tower I 8415 Datapoint Drive San Antonio, Texas 78229-8480 Attention: Chief Executive Officer If to Foothill: FOOTHILL CAPITAL CORPORATION 11111 Santa Monica Boulevard Suite 1500 Los Angeles, California 90025-3333 Attn: Business Finance Division Manager The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. All notices or demands sent in accordance with this Section 12, other than notices by Foothill in connection with Sections 9504 or 9505 of the Code, shall be deemed received on the earlier of the date of actual receipt or three (3) calendar days after the deposit thereof in the mail. Borrower acknowledges and agrees that notices sent by Foothill in connection with Sections 9504 or 9505 of the Code shall be deemed sent when deposited in the mail or transmitted by telefacsimile or other similar method set forth above. 13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER AND FOOTHILL WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE 29 TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. BORROWER AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 14. DESTRUCTION OF BORROWER'S DOCUMENTS All documents, schedules, invoices, agings, or other papers delivered to Foothill may be destroyed or otherwise disposed of by Foothill four (4) months after they are delivered to or received by Foothill, unless Borrower requests, in writing, the return of said documents, schedules, or other papers and makes arrangements, at Borrower's expense, for their return. 15. GENERAL PROVISIONS 15.1 EFFECTIVENESS. This Agreement shall be binding and deemed effective when executed by Borrower and Foothill. 15.2 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to the benefit of the respective successors and assigns of each of the parties; provided, however, that Borrower may not assign this Agreement or any rights or duties hereunder without Foothill's prior written consent and any prohibited assignment shall be absolutely void. No consent to an assignment by Foothill shall release Borrower from its Obligations. Foothill may assign this Agreement and its rights and duties hereunder. Foothill reserves the right to sell, assign, transfer, negotiate, or grant participations in all or any part of, or any interest in Foothill's rights and benefits hereunder. In connection therewith, Foothill may disclose all documents and information which Foothill now or hereafter may have relating to Borrower or Borrower's business. To the extent that Foothill assigns its rights and obligations hereunder to a third party, Foothill shall thereafter be released from such assigned obligations to Borrower and such assignment shall effect a novation between Borrower and such third party. 15.3 SECTION HEADINGS. Headings and numbers have been set forth herein for convenience only. Unless the contrary is compelled by the context, everything contained in each paragraph applies equally to this entire Agreement. 30 15.4 INTERPRETATION. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against Foothill or Borrower, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto. 15.5 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 15.6 AMENDMENTS IN WRITING. This Agreement cannot be changed or terminated orally. All prior agreements, understandings, representations, warranties, and negotiations, if any, are merged into this Agreement. 15.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Agreement. 15.8 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence or payment of the Obligations by Borrower or any guarantor of the Obligations or the transfer by either or both of such parties to Foothill of any property of either or both of such parties should for any reason subsequently be declared to be improper under any state or federal law relating to creditors' rights, including, without limitation, provisions of the United States Bankruptcy Code relating to fraudulent conveyances, preferences, and other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if Foothill is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount thereof that Foothill is required to repay or restore, and as to all reasonable costs, expenses and attorneys' fees of Foothill related thereto, the liability of Borrower or such guarantor shall automatically be revived, reinstated and restored and shall exist as though such Voidable Transfer had never been made. 15.9 INTEGRATION. This Agreement, together with the other Loan Documents, reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted, modified, or qualified by any other agreement, oral or written, whether before or after the date hereof. 31 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed at San Antonio, Texas. INTELOGIC TRACE, INC., a New York corporation ("Borrower") By: MIKE R. ELLIS Its: Vice President Accepted and effective this _____ day of December, 1994. FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill") By: Mike Fishman Its: Vice President 32 EX-11 10 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 INTELOGIC TRACE INC. AND SUBSIDIARY COMPUTATION OF EARNINGS PER SHARE (In thousands, except share data) QUARTER ENDED OCTOBER 31, ----------------------------- 1994 1993 ------------ ------------ Common stock and common stock equivalents: Weighted average shares outstanding ....... 12,496,719 12,074,450 Net effect of dilutive stock options based on the treasury stock method using average market price(1) ........... -- -- ------------ ------------ Total shares ................................. 12,496,719 12,074,450 ============ ============ Net loss, less preferred stock dividends ..... $ (866) $ (744) ============ ============ Per share amount ............................. $ (.07) $ (.06) ============ ============ - ------------- (1) The net dilutive effect of stock options is not considered because the effect would be to increase shares outstanding, which, in loss years, reduces the loss per share and is therefore antidilutive. EX-27 11 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the statement of financial position as of October 31, 1994, and the statement of operations for the three months ended October 31, 1994, and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS JUL-31-1995 OCT-31-1994 202 750 6,038 1,444 675 10,343 69,398 65,778 13,729 19,928 0 199 0 0 (69,044) 13,729 3,708 16,622 2,855 16,169 765 0 554 (866) 0 (866) 0 0 0 (866) (.07) (.07)
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